Summary of the FOMC and RBA rate change expectation for Q3 and Q4 2023

I have continued to post the rate expectations for FOMC from August to December 2023.

Expectations have changed considerably in that time and reflect the changes in expectations for the inflation rate which is reflected in the market expectations for cash rates.

The following sections show the evolution of market expectations for rate changes in US and Austalia from August 2023 unti the present.

FOMC

• No change to the target band since July 2023

• Currently at 5.25% – 5.50%

• Expectations of a rate rise have dramatically reversed by December 2023.

• Now markets expect a fall of 25 – 50 basis points in Q2 2024 and continued falls thereafter

RBA

• Increase of 25 basis points in November 2023 was widely expected just prior to the meeting.

• Currently at 4.35%

• Expectations have moved from a further 25 basis point increase to a 25% chance only.

• Expectations continue to be volatile and closely follow the inflation figures with swings between 25% and 80% chance depending on the monthly CPI

Summary

Markets continue to change their expectations of cash rate moves in both US and Australia.

USA traders are pricing significant falls in the FOMC target cash rates in early 2024 while the Australian counterparts are still undecided and move their expectations as CPI data is published.

2024 is going to be an interesting year!