(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Jamie McGeever

ORLANDO, Florida, June 24 (Reuters) - Financial markets

have consistently overestimated the Federal Reserve's readiness

to cut interest rates in recent years. But the latest Fed

chatter, softening economic data and a dramatic reversal in oil

prices suggest they could be right this time.

The central bank last week appeared to pour ice cold water on

traders' hopes for a dovish steer. In the Fed's summary of

economic projections, officials maintained their median 'dot

plot' projection of two 25 basis point rate cuts this year. But

it was an extremely close call, and they lowered their 2026

forecast to one cut from two.

The consensus view in the days that followed was that

policymakers' hawkish tilt reflected their commitment to

anchoring inflation expectations. Traders' projections for rate

cuts this year duly slipped to under 50 basis points.

But maybe this read was premature.

First, concerns about rising energy prices due to conflict

in the Middle East have disappeared. Even though oil rose as

much as 17% in the days after the Israel-Iran war erupted on

June 13, it is now back below that level. The price is plunging

and late on Monday U.S. President Donald Trump announced that

the two enemies had agreed on a ceasefire.

On top of that, a chorus of dovish comments from Fed

officials in recent days - and not just from the usual suspects

- suggests the U.S. central bank may be closer to cutting rates

than thought less than a week ago.

NEGATIVE SURPRISE

There is certainly some justification for a dovish turn.

On a fundamental level, U.S. economic data is softening.

Citi's U.S. economic surprises index has been falling since the

end of May and is now negative, meaning that economic data is

underperforming consensus expectations. Last week it fell to the

lowest since September last year.

Caution is required, of course, when analyzing economic

surprise indices after significant moves because expectations

may have been too pessimistic or optimistic to begin with. But

the current shift seems to be a legitimate red flag.

"We look at both the momentum of reported data and its

surprise versus consensus expectations. Both have dropped into

negative territory," Citi's Stuart Kaiser notes, pointing out

that the 'hard' activity data index is now negative.

180 DEGREE TURN?

But an even bigger surprise for investors on Monday came

from Fed Vice Chair for Supervision Michelle Bowman, who said

she would consider voting for a rate cut as soon as July if

inflation pressures "remain contained".

Bowman's comments are significant. Granted, she has not

spoken publicly about the economy or policy for two months, and

in March she signaled that labor market conditions would likely

become more important in the policymaking debate.

But she has consistently been one of the more hawkish

members of the Federal Open Market Committee since her

appointment as Fed Governor in 2018.

This came after Governor Christopher Waller, one of the

FOMC's most reliably dovish members, on Friday said a rate cut

next month should be on the table. That's no surprise. But if an

FOMC hawk like Bowman is now singing from that same hymn sheet,

traders and investors need to take notice.

A cynic might wonder about the timing of Bowman's seemingly

180-degree turn, coming just as Trump has intensified attacks on

Fed Chair Jerome Powell for not cutting interest rates. But

there's no evidence to suggest political pressure is at play.

And the recent oil price plunge will help her argument. On

Monday, it tumbled 7%, the biggest decline in three years. This

was even more remarkable considering it had opened the day 6%

higher and hit a five-month high in response to the U.S. bombing

of Iranian nuclear facilities on Saturday.

Moreover, at no point following Israel's initial June 13

strike on Iran did the price of crude rise on a year-over-year

basis. Indeed, oil prices have fallen since January, and are now

down 20% year on year. If inflation is proving sticky, it's not

because of energy prices.

This will be music to Waller's - and now Bowman's - ears.

And with one of the Fed's hawks now appearing to draw in

their claws, it is possible that traders may not be

overestimating the Fed's readiness to cut rates this time

around. Their bets of 125 bps of easing by the end of next year,

starting soon, could be close to the mark.

(The opinions expressed here are those of the author,

a columnist for Reuters)

Enjoying this column? Check out Reuters Open Interest (ROI),

your essential new source for global financial commentary. ROI

delivers thought-provoking, data-driven analysis. Markets are

moving faster than ever. ROI can help you keep up. Follow ROI on

LinkedIn and X.