Signal · Macro Liquidity
Market Reprices for Delayed Easing in Q2 2025 Amid Shifting Fed Rate Expectations
Macro and Fed Rate Expectations Shift as Market Reprices for Easing in 2025 Over the past 48 hours, market signals indicate a decline in the probability of a March rate cut, with traders now expecting easing to occur later in Q2. Key…
Thesis
Macro and Fed Rate Expectations Shift as Market Reprices for Easing in 2025
Key findings
- Over the past 48 hours, market signals indicate a decline in the probability of a March rate cut, with traders now expecting easing to occur later in Q2. Key macro indicators, including Treasury yields and futures implied rates, suggest a gradual shift toward monetary policy loosening within the next few months.
- The CME FedWatch implied probability of a March rate cut decreased from 25% to 14.5%, reflecting a market reprice and expectations of a later easing cycle. June 2025 Fed funds futures imply an average rate of 4.74%, down from 4.82%, indicating roughly two 25 basis point cuts priced by midyear.
- The 2-year Treasury yield dropped 7 basis points to 4.33%, signaling modest easing expectations following Fed Chair Powell’s comments on the data-dependent approach and the need for confidence before cutting rates. The Atlanta Fed’s Q1 GDPNow estimate remains at 2.1% annualized, suggesting above-trend growth that diminishes near-term easing urgency.
Analysis
The Federal Reserve’s balance sheet decreased by $16 billion to $7.43 trillion, reinforcing a steady quantitative tightening stance. The market-implied terminal rate via OIS curve now suggests a 4.00% rate by December 2025, down from 4.125% last week, indicating expectations of around 100 basis points of easing in 2025.
Fed Chair Powell’s recent remarks, including his statement that the Fed is “not far from confidence needed to cut,” have shifted market sentiment away from an imminent March cut toward a potential move in May or June. The inflation measure, with core PCE YoY at 2.8%, continues to guide expectations for a gradual rate path, with inflation still near the target zone.
The dataset does not specify margin levels or liquidity breakdowns beyond these figures, nor does it include forward guidance beyond the current rate expectations and market-implied probabilities.
The dataset lacks detailed information on forward guidance or specific liquidity conditions, which could influence future rate expectations and market dynamics.