I expect the Federal Reserve to cut its benchmark interest rate at the Wednesday, September 18, meting of its Open Market Committee. It will be the first in a series of cuts that is likely to include 3 cuts in 2024 (at the September, November and December Fed meetings. There is no Fed meeting in October. My suspicion is that Fed members give themselves the month off so they can prepare for Halloween. This was a policy adopted at the urging of Fed members who were tired of always going dressed as Scrooge.)
The odds of a rate cut are a solid 100%.
But there is high drama about the size of the initial cut to the Fed’s benchmark interest rate, now at a target range of 5.25% to 5.50%.
On Friday the CME FedWatch tool put the odds of a 25 basis point cut at 50% and the odds of a 50 basis point cut at 50%.
expectations have been all-over-the-place in recent weeks. A week ago the FedWatch odds for a 25 basis point cut were 70% and the odds for a 50 basis point cut were 30%.
Friday saw a rise in expectations for a 50 basis point cut after reports by the Financial Times and The Wall Street Journal that policymakers were struggling to come to a decision.
My take is that a 25 basis point cut is the likely outcome. A 50 basis point move as the first interest rate cut might well unnerve the financial markets. “What?” some traders and investors would say. “So the Fed sees something scary in the data.”
Yardeni Research chief markets strategist Eric Wallerstein told Bloomberg that the Fed likely wouldn’t cut by more than 25 basis points “absent recessionary conditions or a financial crisis emerging.”
Still expect volatility as we approach the meeting. Wall Street will be placing big bets in an attempt to make money from this uncertainty.
