The market doesn’t think the Federal Reserve will cut rates twice this year in light of a strong finish to the year for employment. The unemployment rate fell to 4.1% from 4.2%, and the economy added 256,000 jobs compared to the expected 160,000.

Market prices now indicate that a May rate cut to a range of 4.00-4.25% is now less likely than retention, with a 46% probability. The first full price cut is only in September and there is 31 bps in price cuts compared to 35 basis points before the data.

What worries me is that there is some reflexivity between the economy and the bond market. US 30-year yields hit 5% on this, which will push US 30-year fixed mortgages above 7%. Apart from the two-month period at the end of 2023, these are the highest long-term rates since before the financial crisis.

In this sense, the real economy has de facto faced hiking since September, not 100 basis points in easing since September. That will cool activity later this year, and could cool equity markets before then.