Swaps contracts for the outcome of future Fed policy meetings are pricing in another 70 basis points of easing by year-end — and around two percentage points of cuts by the end of next year. That’s more than the Fed’s dot plot of policymaker forecasts, which points to only another 50 basis points of easing this year.

Fed officials updated quarterly economic forecasts to raise their median projection for unemployment at the end of 2024 to 4.4%, from 4% in June. Powell said last month that further cooling in the labor market would be “unwelcome.” The upsized cut to kick off the cycle was Powell’s attempt at ensuring the soft landing he’s long had in his sights.

“It now will be a battle between market expectations and the Fed, with employment data — not inflation data — determining which side is right,” said Jack McIntyre, portfolio manager at Brandywine Global. “Since this policy move was mostly telegraphed, there is no outsized move in financial markets. Now, everyone is back to data dependency.”

Another big reduction hinges on the US labor market getting weaker, according to JPMorgan Chase & Co., a Wall Street titan whose economists correctly called the size of this week’s cut. They still expect a second straight half-point move come November. Goldman Sachs Group Inc. revised its forecasts to see a faster pace of cuts, and said the choice between a quarter- or half-point reduction next is “a close call.”

Philip Camporeale, portfolio manager at JPMorgan Asset Management, said the firm is not expecting a recession but sees US Treasuries as a good hedge against that unlikely outcome.

Treasuries are good “ballast” now, Camporeale said on Bloomberg Television Thursday. But “We do not expect yields to plunge.”

A gauge of the dollar reversed Wednesday’s move to slip 0.2%, with Norway’s krone leading gains after its central bank bucked the Fed’s easing drive to hold pat. The yen fell as the Bank of Japan started its two-day meeting, with economists unanimous there won’t be a policy change.

It’s been a hectic week for central bank meetings. The Bank of England on Thursday kept rates steady and warned investors it won’t rush to ease monetary policy, deciding against a second consecutive cut in borrowing costs as it awaits further signs inflationary pressures have subsided.

“For now, the Fed can afford to humor financial markets,” said Naomi Fink, Nikko Asset Management’s chief global strategist. “Wherever ‘neutral’ rates sit, they are lower than where we are now, allowing some additional room for the Fed to cut rates in the name of normalization, rather than outright stimulus. But the market appears to be keener on rate cuts than the Fed itself.”

(Updates throughout, adds additional quote.)

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