The bond market is aggressively pricing in a Federal Reserve easing cycle that would see two interest rate cuts by the end of this year, pushing the Fed Funds Rate below 4%.
But while markets celebrate the prospect of cheaper money, Creative Planning’s chief investment officer is urging extreme caution, stating that when it comes to long-term predictions, Fed officials “don’t know any better than my seven-year-old.”
September May Definitely See Interest Rate Easing
The market’s bullish expectations, amplified by recent comments from Fed Chair Jerome Powell, anticipate a significant policy pivot.
According to an analysis of Fed Funds Futures by Charlie Bilello, Chief Market Strategist at Creative Planning, traders are betting on a near-certain rate cut in September, followed by another before the year is out.
Rates Could Fall From 4.25%-4.5% Now To Below 3% In 2026
“They’re not expecting just a one-off in September,” Bilello noted in a recent discussion on YouTube. “They’re expecting another one before the end of the year.”
The projections extend even further, with the market pricing in three to four additional cuts in 2026, a move that would bring the benchmark rate below 3.00%. This optimism has fueled a broad market rally, lifting stocks, bonds, and other assets.
Fed's Own Predictive Track Record Is Poor
However, Jamie Battmer, CIO at the same firm, delivered a sharp reality check, dismissing the reliability of such distant forecasts. He argued that the Fed's own predictive track record is poor, pointing to wildly inaccurate market predictions for 2024 that never materialized.
“Their guesses are just as mediocre as any of our guesses,” Battmer stated, emphasizing that Fed policy must remain dependent on evolving economic conditions, not on year-old predictions.
He offered a stark conclusion on the futility of forecasting: “The men and women who lead the Federal Reserve don’t know any better than my seven-year-old as far as what interest rates are going to be 18 months, two and a half years, 10 years from now.”
Price Action
The CME Group's FedWatch tool‘s projections show markets pricing an 89.7% likelihood of the Federal Reserve cutting the current interest rates for the Sept. 17 decision.
The tool also projects a 95% and 99.2% chance of easing in October and December meetings, respectively.
The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, fell on Friday. The SPY was down 0.60% at $645.05, while the QQQ declined 1.16% to $570.40, according to Benzinga Pro data.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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