Fed: Market currently fully pricing a 25bps cut

Deutsche Bank analysts point out that today is the long-awaited Fed decision day, where markets are fully pricing in what is expected to be the first-rate cut since December 2008.

Key Quotes

“The question still on investors’ minds is by how much the Fed will cut, and whether there’ll be any messages about the future path of rates going forward. The market currently fully prices a 25bp cut and implies a 16% chance of a larger 50bp cut. Although the Fed have given no real encouragement to the notion of a 50bps cut it’s worth noting that the last time the Fed began a series of rate cuts, in September 2007, their opening move was a 50bp cut, and a similar 50bp cut happened when the Fed began cutting in January 2001.”

“Rates were higher back then though. The last time the Fed started an easing cycle with a 25bps cut was in September 1998, when they ultimately cut rates 3 times and successfully prolonged the expansion until the recession in 2001.”

“Our US economists predict a 25bp cut, but they say that “the key question is how Chair Powell and the Committee frame the narrative for further easing through year end.” With this in mind, investors will be paying close attention to Chair Powell’s press conference. Our economists write that they “do not expect the Committee to pre-commit to another cut in September”, but instead the amount of further easing is going to be data dependent.”

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