There’s always the question of exactly how smart the smart money is, but I find these moves from big Wall Street names interesting as I look for any signs of cracks in the current consensus looking for a quick pivot to interest rate cuts from the Federal Reserve.
Strategists at Goldman Sachs have joined those at Barclays in advising customers that the Federal Reserve will be less aggressive in cutting interest rates this year than markets are predicting, Bloomberg reported today, May 9.
Swap contracts around Fed meeting dates currently price in about 70 basis points in interest rate cuts by year-end, Goldman notes. Goldman strategists recommend placing bets that the size of expected cuts will fall by December.
Last week Barclays strategists advised clients to fade the aggressive pricing of rate cuts for this year by buying a short position in the August 2023 fed funds futures at 95.06. The trade was around 6 basis points in the money Tuesday, Bloomberg calculates.
The latest futures positioning data from the Commodity Futures Trading Commission suggests hedge funds–another smart money group–expect the Fed to keep rates higher for longer. A notable theme in options last week was to hedge the amount of rate cuts priced into the end of the year future.
Positioning in the futures market around Fed policy for this year has entered a key period this week, with April inflation data due to be released Wednesday and Thursday.
