Briefly on Monday’s scary stock market volatility, traders and investors decided that the Federal Reserve would make its first interest rate cut at its September 18 meeting not a “business-as-usual” 25 basis points but a “market emergency” 50 basis points.

On the CME FedWatch tool the odds of a 50 basis point cut jumped to 85% from just 13.2% on July 30. (The FedWatch tool calculates the odds of a Fed move by looking at prices in the Fed Funds Futures market. It’s thus a good gauge of Wall Street opinion on what the Fed will do, even if it doesn’t measure actual Fed intentions.)

The reason for the big jump in belief that the Fed was about to ride to the rescue? Worry after Friday’s weaker than expected July jobs numbers that the U.S. economy was slipping into recession. And a “the sky is falling” panic as the NASDAQ and the Standard & Poor’s 500 plunged into a correction. Wall Street always believes that the Fed sees a drop in stock prices as equivalent to a threat to the financial system.

On Tuesday, August 6, the odds of 50 basis point rate cut at the September 18 meeting fell back to 70.5%. (The odds of either a 25 basis point or a 50 basis point cut were 100% on the FedWatch tool.)

I still think even 70.5% is too high. Wall Street seems to have, temporarily, forgotten that 2024 is an election year and that the Federal Reserve moves, if it moves at all, with reluctance close to the November vote. The central bank fears being accused of playing politics if it moves interest rates too close to the vote. I think the economic data is compellingly strong this year to override the Fed’s reluctance. We are almost certain to get a 25 basis point cut on September 18.

But 50 basis points? No way. Too big a move. Too close to the election. With one of the two major parties already making noise about the need to reign in the Fed’s independence.

And if I’m right–and if Wall Street gradually pulls back on its belief in a 50 basis point cut in September–I’d expect to see some of the big move in yields on the 2-year Treasury and other shorter maturities to get unwound as well.

If you’ve moved to Treasuries as a hedge against market volatility in the last few days, you might want to take a hard look at your exposure to a “disappointing” 25 basis point cut on September 18.