A more granular version of /DanMan314/when-will-fed-pivot-lower-interest
If the FED has an emergency meeting and lowers rates, resolves to "Unscheduled Meeting". If they do not pivot before 2025, resolves to "No pivot before 2025". Otherwise, resolves to the first FOMC meeting in which they announce a lowering of the target federal fund rate.
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@chrisjbillington What justifies this level of confidence? Aren't we like a bad inflation print and strong unemployment/market updates away from delaying the pivot again?
@Sketchy haha. FWIW I think I've lost plenty of mana betting on earlier Fed cuts - I might even be down on net for bets on interest rates. Not sure.
In this case the real money futures markets seem to be exceedingly confident, so I'm more or less trying to mirror them. They're pricing 28bps of cuts at the next meeting, so even a small probability of a 50bps cut it seems.
Granted the markets are mostly telling you an expectation value and not much about the variance, and I have no idea how CME FedWatch actually infer probabilities (obviously imperfectly - they've got a 0% chance of rates being on hold in Sep!). So I could be overconfident. But the vibe from commentators is also very confident.
The impression I get is that the Fed would basically be happy to cut on the status quo, but is allowing for some margin to decrease the chances of having to reverse course. So I think inflation prints would have to be pretty bad between now and Sep to change anything. If they're just somewhat worse than expected, I think we're still on for a cut. Not that they'd openly say that of course - but they're so careful with their words that Powell even saying a rate cut is on the table for Sep ("if inflation data continues to cool") seems to have been interpreted as just short of an unconditional promise.
It also sounds like at the moment (the Fed thinks that) the risk of too-high unemployment is starting to dominate over the inflationary pressure from too-low unemployment. So I suspect a somewhat stronger than expected employment print would be more of a relief than a concern, and would be mostly ignored (unless it's really strong) as long as inflation data is still OK.
Job openings came in a little higher than expected the other day, and this didn't seem to change things much at all. Can't say I'm following vibes to closely but my impression is that more prints like that relative to expectations would basically be good news on the recession-risk front, and mostly irrelevant to the inflation front unless they're really dramatic.
I have my biases, I'm definitely an optimist on this topic in a way that is hard to justify by pointing to hard facts. Interested in your take!