The possibility of a cut in the next Federal Reserve meeting is considered unlikely, with potential cuts seen in June or July. There is an expectation that the Fed may remain unchanged for the third quarter.
The chance of a recession is estimated at 50% to 60%, while the 10-year yield is not anticipated to fall below 4%. Additionally, inflation is not expected to stabilise around the 2% mark.
The view is expressed that risk may become more affordable, suggesting that having available capital could present advantageous opportunities.
Market Expectations On Interest Rates
This suggests that current market expectations do not favour an imminent reduction in interest rates. Instead, any adjustment is expected later in the year, possibly around the middle of summer. If that timing holds, those influenced by Fed policy should be mindful that borrowing costs are likely to remain steady in the short term. That leaves limited room for speculation on sudden shifts in lending conditions before mid-year.
The estimated probability of a recession being between 50% and 60% reflects uncertainty. It is neither a foregone conclusion nor an unlikely event. While that may seem apparent, the implications are relevant—market participants should weigh both scenarios carefully rather than position themselves entirely on one outcome. The projection that the 10-year yield is not likely to drop below 4% reinforces expectations that borrowing costs will not return to previous lows. With inflation also seen as unlikely to settle at 2%, pricing pressures remain a concern, meaning monetary policy may stay tighter for longer.
Opportunities In Risk Assets
There is an argument that assets with perceived risk might become more attractive. The reasoning is that if conditions shift in a way that encourages further investment, having deployable capital at the right moment may offer an edge. Sitting on the sidelines for too long could mean missing opportunities that arise from short-term shifts in market confidence. At the same time, overextending without clear signals remains a risk, meaning adaptability is essential.
As expectations continue to adjust, volatility could accompany fresh data releases. If inflation figures differ from projections, or if economic performance shows unexpected strength or weakness, the path forward for monetary policy may need to be reassessed again. That creates an environment where those who respond swiftly to new developments may have an advantage.
