Doubts creep in about Fed rate cut this year

After the latest blockbuster jobs report Friday showed continuing strength in the economy, more traders are betting the Fed may cut the benchmark federal-funds rate just once or twice this year, fewer than officials' last median forecast of three quarter-point cuts.

- Eric Wallerstein

And a handful are even starting to wager that the central bank will leave rates where they are.

The shift could pose a challenge to a stock-market rally built on the hope that the economy would slow enough for the Fed to lower borrowing costs from multi-decade highs above 5%, but not enough to start a recession. Instead, the prospect of growth and inflation keeping rates far higher than anticipated just months ago has rattled markets, sending the Dow Jones Industrial Average to its worst week since March 2023. Stocks recovered some ground after Friday's jobs data, but the blue-chip index finished the week down 2.3%.

"The last of the economic bears are throwing in the towel," said Joe Brusuelas, chief economist at RSM US. "We have a sustained economic expansion, and investors who manage risk are now repricing it." Investors will get a new perspective on the outlook for rates this coming week with Wednesday' S release of the consumer-price index. Inflation has cooled significantly from 40-year highs, but two months of hotter-than-expected readings have helped reinforce the Fed's wait-andsee approach to cuts.

That data will follow a string of signs that U.S. growth is robust. The country added far more jobs than economists anticipated in March, with workers becoming more productive and immigration continuing to fuel employment.

Prices for oil and other commodities have climbed to multi-month highs. The housing market remains firm.