Scotiabank strategists Shaun Osborne and Eric Theoret note that for the US, focus is on incoming data and the Federal Reserve outlook as markets approach the March 18 FOMC meeting. They highlight that policymakers’ appearances are limited before the communications blackout, while short-term rates markets have materially reduced expectations for easing this year. Recent ISM and labor data point to resilient US economic activity.

Markets trim Fed easing expectations

"For the US, the focus remains centered on data and the outlook for the Fed. The recent softening in both initial and continuing claims has eroded one of the Fed’s key arguments for easing, in that the data suggest a resilient labor market."

"Market participants are flying relatively blind heading into the March 18 FOMC, with few policymakers scheduled ahead of the communications blackout period that begins on Saturday."

"Short-term rates markets are pricing about 40bps of easing this year, but no policy changes for either the March or April meetings and barely 10bps of easing by June."

"A 25bps cut is not fully priced until September, reflecting a material softening of expectations for easing as a result of both stronger data and the US/Iran conflict."

"The latest ISMs have been impressive, with both manufacturing and services showing a material improvement in sentiment and suggest a material re-acceleration in US economic activity."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)