Fed: Strong economic data shifts rate cut expectations – Deutsche Bank

Market Shifts Delay Federal Reserve Rate Cut Hopes

According to Deutsche Bank strategists, recent robust data from the ISM Services sector and ADP private payrolls have led investors to scale back expectations for an early interest rate reduction by the Federal Reserve. Analysts point out that the likelihood of a rate cut in June has dropped to 39%, as doubts increase over whether a new Fed Chair would move to lower rates immediately.

Stronger Economic Data Pushes Back Rate Cut Timeline

Recent US economic indicators have reinforced a positive outlook for the economy. The ISM services index climbed to 56.1 in February—its highest level since 2022 and well above the expected 53.5. Notably, new orders soared to a 17-month peak of 58.6, while the prices paid component eased to an 11-month low of 63.0.

In addition, the ADP report showed private sector payrolls increasing by 63,000 in February, surpassing forecasts of 50,000 and marking the strongest result in seven months. This upbeat data comes just ahead of the release of the official US jobs report.

Given these strong economic signals, investors are increasingly doubtful that the Fed will lower rates in the first half of the year. By the end of the trading day, the chance of a rate cut at the June meeting—when a new Chair is expected to preside—had slipped to its lowest point this year at just 39%.

Overall, skepticism is mounting about the possibility of immediate rate reductions under new leadership, especially as current data continues to show economic strength.

(This article was produced with the assistance of artificial intelligence and reviewed by an editor.)