Before today's US GDP report, the market was pricing in 41.5 basis points in Federal Reserve easing. Afterwards, it sees just 35 bps in cuts.
The odds of a cut in July fell from roughly 50/50 to 34%. A cut isn't even fully priced in for November.
The shifts are due to the inflation reading in the report. The PCE deflator was 3.1% compared to 3.0% expected. Core PCE was 3.7% compared to 3.4%.
Overall GDP rose just 1.6% annualized compared to 2.4% expected.
The outsized reaction to the inflation reading is because tomorrow we get the March PCE report and these numbers imply an upside surprise. When the number is released Friday at 8:30 am ET, keep that in mind, because we could see a 'sell the fact' type of reaction.
