The 2024 interest rate-cut rollercoaster

It’s been said that the past is a foreign country, but late January of 2024 might as well have been a different planet.At that time:

What a difference a little over seven months can make.Today, in early September:

OK, fine. A lot of things are still the same. But just because things didn’t change doesn’t mean a lot didn’t happen.In fact, Kalshi’s 2024 ‘Rate Cut Count’ market has been a real-time rollercoaster ride as traders reacted to all the twists and turns that the economy has taken. And like most roller coasters, we seem to have ended up right back where we started (at least for now).

Remember: this is not financial advice. It's just the opinion of a guy getting paid to ramble on the Internet while using a pseudonym. The author cannot trade on Kalshi.

Going into the year, there was quite a bit of optimism that the Federal Reserve had beaten inflation without causing a recession.

In fact, some analysts were predicting as many as six interest rate cuts."We have modest growth and cooling inflation and a cooling labor market — exactly what the Fed wants to see," ING's chief international economist, James Knightley, wrote in November of 2023.Kalshi traders were also optimistic, and started the year with a forecast of 5 cuts. But as the chart above demonstrates, that optimism quickly faded as CPI and Jobs Reports kept coming in hot.

By May, things were looking bleak. As the chart above shows, the chances of zero cuts in 2024 reached nearly 40% on the first of the month. And it wasn’t just some fat finger mistake like that spike in February.

Luckily, it didn’t last long. April’s Jobs and CPI data both came in below expectations, reigniting optimism that cuts were on the way. Aside from a brief spike in early June when another Jobs Report (May) came in high, chances of rate cuts have been trending upward.

The favorable data continued in June and July as CPI and PCE readings continued to moderate.BLS Jobs Reports also continued to move in the right direction. In fact, July’s Jobs number was so low (114,000 compared to an expected 185,000) that recession fears began to mount.These fears were only exacerbated by a stock market meltdown on August 5, that had some pundits calling for an emergency rate cut.But the Fed kept its cool, another positive CPI reading on August 14 all but sealed the deal. Then, on August 23, Fed Chairman Jerome Powell began telegraphing the Fed’s intent to cut rates during his Jackson Hole press conference.

As it stands now, it’s no longer a question of if or when the cuts are coming, but rather how many.As mentioned above, Kalshi traders are once again predicting between three and four 25 bps cuts for the year, just as they did in late January. But the more urgent question is how many cuts will we see at the September FOMC meeting?

The recently released August jobs report was lower than expected, but closer to expectations than what we saw in July. As a result, traders give one 25 bps cut a nearly 80% chance. However, a higher than expected August CPI rating later this week could provide us with yet another unexpected hill on the 2024 rate-cut rollercoaster.

Follow Terry Oldreal on X: @realoldterry

The opinions and perspectives presented in this article belong solely to the author(s). Trading on Kalshi involves risk and may not be appropriate for all. Members risk losing their cost to enter any transaction, including fees. You should carefully consider whether trading on Kalshi is appropriate for you in light of your investment experience and financial resources. Any trading decisions you make are solely your responsibility and at your own risk. Information is provided for convenience only on an "AS IS" basis. Past performance is not necessarily indicative of future results. Kalshi is subject to U.S. regulatory oversight by the CFTC.