If you listened to a lot of market commentary a month ago, you would have gotten the sense that an early 2024 interest rate cut was a sure thing. Now, it's looking more like a coin flip.

Why it matters: When the easing cycle begins — whether it turns out to be March or later — it will be a meaningful signal that a period of aggressive monetary tightening has ended and Fed officials are comfortable that inflation is at a low risk of flaring up again.

• Indeed, it's precisely because they seek that confidence that officials have played down market expectations that cheaper money is imminent.

State of play: On Tuesday morning, futures markets priced in 60% odds that the Fed's target interest rate will be unchanged following its meeting that concludes March 20, with a 40% chance of one or more rate cuts by then, per the CME FedWatch tool.

• As recently as Jan. 12, markets put 81% odds on a rate cut by March. They were 90% on Dec. 27.
• The shift is also reflected in an uptick in the policy-sensitive rate on two-year U.S. Treasuries, which were yielding 4.41% this morning, up from 4.14% Jan. 12.

Between the lines: As we reported last week, this shift reflects a mix of strong data on growth plus subtle messaging from Fed officials.

• Fed leaders appear open to rate cuts in the not-too-distant future but are making clear they need to see more decisive evidence that recent good news on inflation isn't yet another head-fake.
• They need to see soft inflation in January, which will be evident in data released throughout February, in order to cut rates in March.

What they're saying: "In mid-February, we will get the January [Consumer Price Index] report and revisions for 2023, potentially changing the picture on inflation," governor Chris Waller said in a speech last week.

• "My hope is that the revisions confirm the progress we have seen, but good policy is based on data and not hope," he said.

Yes, but: The case for a March rate cut would also be helped if the growth numbers started showing any real weakness. December retail sales — up 0.6% — did the opposite.

• Writes Tim Duy, chief U.S. economist for SGH Macro Advisors, "to get over the edge to a March rate, the Fed will need to see recent strength in the real data turn around."
• "Given the timing of the data flow, in practice this means that will need to happen with more evident weakness in the next two employment reports," he adds.