Fed chair Powell made sure to play his cards right last week. And even though he offered no hints of a rate cut then, it was always about maintaining the flexibility. So now that we got the more dismal US jobs report, markets are already casting their vote on what the Fed is going to do next in September.
As things stand, Fed funds futures are now pricing in ~92% odds of a 25 bps rate cut for September. And by year-end, we’re looking at a total of ~60 bps of rate cuts priced in. And that looks to be what Fed policymakers are starting to allude to as well.
Over the weekend, we had Williams saying that he will “keep an open mind” about a move in September. And yesterday, we had Daly come out to say that two rate cuts would be the right amount of calibration needed by the Fed. She did say that they could do less but more than likely, they might have to go with that or more.
Essentially, the next three meetings in September, October, and December are going to be ‘live’.
And seeing the current pricing, September looks to be a given now as markets are looking to bully the Fed into making that decision for them. Otherwise, there’s going to be plenty of kicking and screaming in equities. That especially after yesterday’s rebound to the sharp decline on Friday.
We’ve gone from “the economy is still hot, so all is good” rally to “oh no, the economy is bad” in just a day. And then after the weekend now, we’re moving to “even if the economy is bad, rate cuts will come to save us”. This has been a market that will spin the narrative no matter what since last year.
