Fed's March Dot Plot and the path for Q2

Watching the March FOMC very closely this week, particularly the updated dot plot. The market has largely priced in rate cuts starting around June, but the recent CPI and employment data have definitely muddied those waters. There's a growing divergence between market expectations and what the Fed might actually signal.

My take is that we'll likely see the median dot plot for 2024 shift slightly higher, perhaps from the prior 3 cuts to 2 cuts. I'd assign a 65% probability to this outcome. The Fed, in my view, is still very much data-dependent and the stickiness of inflation, even if moderating, coupled with a robust labor market, gives them little imperative to rush. A scenario where they maintain the 3 cuts but strongly reiterate a 'higher for longer' stance beyond 2024 for terminal rate is also possible, maybe 25% probability. This would still temper market enthusiasm for aggressive easing. A truly dovish surprise, signalling more than 3 cuts, feels like a long shot, perhaps 10%. The $US30 currently sits around 52485.03, and any hawkish lean could see it retrace towards the lower end of the recent range, while a dovish tilt might push it towards 53000 quite quickly. The market is very sensitive to any nuance here.