SOFR futures are predicting a terminal rate at or below estimates of neutral. That strongly suggests the rates market is about to take recession as its base case, even while the data continues to be consistent with a soft landing.
Yields’ terrier-like tenacity in gunning for a recession continues, with rumors of a 50 bps cut at the Federal Reserve’s meeting next week the latest push lower on rates. There are several ways to estimate the neutral rate, all of them with the flaws that come with observing something that is inherently unobservable.
