ratecutexpectations

The Bank of England is forecast to cut interest rates by 25 basis points this week to 3.75%, bringing monetary policy very close to the “neutral” level—the boundary beyond which it could start to fuel inflation. With inflation still elevated at around 3.4–3.6% while the labor market is weakening, policymakers are increasingly struggling to choose between supporting growth and controlling prices. Investors believe the terminal rate for this cycle will be around 3.4%, implying that the BoE has very limited room left for further easing
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The U.S. Federal Reserve cut its benchmark interest rate by 0.25 percentage points again — part of a cycle of easing that has unfolded since late 2024 — bringing rates down to roughly 3.50%–3.75%.
Chair Jerome Powell and the Fed project only limited additional cuts ahead, indicating a more cautious approach even as economic risks grow.
The decision reflects tension between a weakening labor market and persistent inflation above target, and internal Fed divisions on policy direction.

📊 Why This Matters
Rate cuts are usually intended to support economic growth by reducing borrowing costs for consumers and businesses.
But when the Fed lowers rates because growth is slowing, markets often interpret that as a warning signal about economic health, which can amplify recession fears — both among investors and analysts.

📈 Recession Fears Rising
Economists and markets have recently increased recession probability estimates as growth slows, hiring weakens, or downside risks mount. For example, some forecasts have raised the 12-month recession chance significantly based on slowing activity and trade uncertainties.
Analysts caution that historically, when the Fed resumes cutting after a long pause, it sometimes precedes recessions — though not every time.
Markets remain uncertain and volatile, with differing views on whether cuts reflect a looming downturn or a pre-emptive step to avoid one.
🧠 Fed’s Messaging Is Mixed
While the Fed has eased policy, officials have also signaled a possible pause and highlighted that inflation remains above target — suggesting they’re unwilling to cut too far too fast.
Internal disagreement at the Fed underscores how difficult it is to balance growth support with inflation control.

🧠 In Simple Terms
✔️ Lower interest rates can reduce borrowing costs and support spending/investment.
❗ But if cuts are driven by economic weakness, they can signal slowdown, which markets and economists often interpret as heightened recession risk.

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Yesterday (Dec 10), the Fed gave us what we wanted: a 25 basis point rate cut.
Retail logic says: Fed cuts rates ➡️ Bond prices go UP ➡️ Yields go DOWN.

But the opposite happened.
Yields rose, bond prices tanked, and institutional desks like BNP Paribas (who have held a "short duration bias" throughout late 2025) likely walked away with massive profits.
Here is the masterclass in macro trading that just played out. 👇
🛑 The Paradox: Why did Bonds Dump on a Rate Cut?
This is a classic case of "Buy the Rumor, Sell the Fact" combined with Inflation Fear.
Priced In: The market had priced this cut at nearly 87% probability. The easy money was made weeks ago.The "Inflation Floor": With inflation sticking around 3%, smart money knows the Fed might be forced to pause in early 2026.Fiscal Panic: Investors are demanding higher yields (premium) to hold long-term US debt because they are worried about government spending.
🐊 How the Pros Played It (The "Short" Strategy)
While retail traders were longing TLT (expecting a moonshot), institutions like BNP Paribas have favored short duration strategies (betting that long-term bonds would lose value or underperform).
The Trade: Shorting Long-Term Treasuries (10Y/30Y).The Catalyst: When the 10-Year Yield ticked up yesterday (despite the rate cut), these short positions printed money.The Lesson: Don't fight the trend. The yield curve is steepening, and "duration risk" is the silent killer in this market.
💡 What This Means for Crypto
If bond yields keep rising, it puts pressure on risk assets (like Tech stocks and Crypto).
Watch the DXY: If the Dollar strengthens on higher yields, Bitcoin could see a short-term pullback.Rotation: Capital might flow from "risk-on" (Alts) back into "risk-off" (Short-term T-Bills yielding 5%+) until the dust settles.
👇 REAL TALK:
Did you get trapped longing the bond breakout yesterday? Or are you sitting in stablecoins waiting for the dip?
Let me know your strategy:
A) Buying the Dip: Higher yields = better entry prices for BTC! 🐂
B) Staying Cash: waiting for the 10Y yield to cool off. 💵
C) Shorting Everything: Following the banks! 🐻
Follow for more Institutional Market breakdowns!
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