• The Fed held rates steady this week, as largely expected, while clearly opening the door to a rate cut in July. Immediately following the meeting, 2-year yields fell approximately 14 bps in anticipation of lower market rates while the 10-year moved below 2% on Thursday.1
  • According to the Fed’s dot plot, eight Fed governors forecast at least one rate cut for this year. But the median Fed forecast for rates in 2019 held steady at 2.4%.2 Within this context, it’s important to remember that market expectations for the Fed funds rate have been consistently lower than the Fed’s own projections.
  • As the chart shows, this was true when investors expected rates to rise in late 2017 and has been equally true in today’s environment. In fact, investors currently expect the target Fed funds rate to finish 2019 at approximately 1.75%, which implies more than three rate cuts within the next six months.1
  • We’ve seen since Q4 2018 how much Fed expectations can impact market performance and drive volatility. Since December 2017, the divergence between market expectations and Fed projections has never been wider, which creates the potential for significant volatility should the size of this rift persist.

1 Bloomberg, as of June 20, 2019.
2 Federal Reserve Summary of Economic Projections, http://bit.ly/2N151Kt.


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