Week in review
- U.S. April headline inflation at 2.3% y/y
- U.S. NFIB Small Business Optimism Index fell 1.6 points in April
- China new loas totaled CNY 280B in April, below consensus
Week ahead
- China monthly activity data
- Taiwan export orders
- Japan core CPI
Thought of the week
Market expectations for Fed rate cuts in 2025 have shifted significantly over the last two weeks. At the end of April, markets were pricing in the first full cut to occur in July, with ~40bps expected. However, at the time of writing, expected cuts by July have fallen to <1bps, with the anticipated first cut pushed back to October. The pullback in expectations was initially prompted by the stronger-than-expected 177K April nonfarm payroll. It was then accelerated by the results of U.S.-China negotiations, which eased much of the growth impact from tariffs. As the House prepares to finalize the budget reconciliation bill by end May, prospects of sweeping tax cuts this year have further alleviated growth concerns while adding inflationary pressures. This has resulted in markets expecting a more hawkish Fed in 2025 than before Liberation Day (3/31). While April inflation was more benign than expected, it could take weeks before corporations start passing on tariff costs to consumers. With recessionary concerns receding, although still very much present, justifications for insurance cuts soon are dwindling, giving the Fed more time to remain in “wait-and-see” mode.
Market expectations of Fed Funds Rate trajectory
Implied by overnight index swaps
Source: Bloomberg, J.P. Morgan Asset Management. Data reflect most recently available as of 15/05/25.
Market data
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