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Markets want to hear something very specific from the FOMC and Chair Powell: that the Fed will cut rates today, again in September, and maybe once more at year-end, no excuses. Assuming the Fed wants to wrestle the policy-making wheel away from Mr. Market, Chair Powell will have to contextualize the novel reasons for these moves – inoculating the US economy from global weakness and spurring inflationary growth – at his press conference. His credibility is already low from his U-turn on rates in January; he has to get this one right.
If we hear today is “the most important Fed meeting ever” one more time, we may just lose it. Yes, we’ll certainly see the first rate cut since 2007. Yes, global capital markets have bullied the Fed into this move; if German bunds had a positive yield no one would be expecting anything from Chair Powell and the FOMC. But anyone who sat in front of a screen during the Financial Crisis knows today’s rate decision doesn’t even crack the top 5 list for the most consequential Fed meeting of all time.
Over… - Market - Expectations - Fed - Policy
Rant over… so let’s talk about market expectations for future Fed policy through the lens of Fed Funds Futures:
Odds - % - Basis - Point - Cut
Odds overwhelmingly favor (78%) a 25 basis point cut.
Odds of a 50 bp cut are just 22%, down from 32% a month ago.
September - Meeting
September 18th meeting:
With 7 weeks more economic data under our belt, markets expect the Fed will still be on an easing track.
Cut - Today - Futures - Odds - Cut
Assuming the all-but-certain cut today, Futures put the odds of another cut at the meeting at 55%.
The odds the Fed will stand pat after today’s cut are just 33%.
Horse - Possibility - % - Fed - Bp
The dark horse possibility (12%) is that the Fed has cut by 50 bp at either today’s meeting or in September.
October 30th meeting:
Futures - Points - Pause
Futures pricing points to a pause here,...
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