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MNI Fed Preview - Sept 2024: “Close Call” Tilts To 50bp Cut

Subsequent media reports that it’s a “close call” have pushed market pricing to imply a split decision vs a 50bp cut, and to MNI’s Markets Team, it suddenly looks more likely than not that Chair Powell will persuade the FOMC to opt for a slightly more front-loaded cutting cycle

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MNI (NEW YORK) - EXECUTIVE SUMMARY:  

  • Fed leadership has made it abundantly clear that the FOMC will initiate a rate cutting cycle at the September meeting, with pre-blackout developments pointing toward a 25bp reduction as opposed to an outsized 50bp.
  • But subsequent media reports that it’s a “close call” have pushed market pricing to imply a split decision vs a 50bp cut, and to MNI’s Markets Team, it suddenly looks more likely than not that Chair Powell will persuade the FOMC to opt for a slightly more front-loaded cutting cycle.
  • The apparent last-minute indecision underlines uncertainty over how the Committee currently sees the likely extent and pace of cuts, beyond “data dependent”, as it assesses what it sees as a shifting balance of risks between rising unemployment and above-target inflation.
  • The new Dot Plot is likely to reflect uncertainty over the path forward, starting with anywhere from 75bp to 125bp of cuts signalled in the 2024 Fed funds median, depending on what the FOMC opts for on Wednesday.
  • The end-2025 rate is likely to show an even wider dispersion, reflecting the uncertainty over the path ahead, but a general consensus that the FOMC would like to return policy to neutral levels fairly quickly.

Note to readers: MNI’s separate preview of sell-side analyst summaries to follow on Monday Sep 16

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MNI (NEW YORK) - EXECUTIVE SUMMARY:  

  • Fed leadership has made it abundantly clear that the FOMC will initiate a rate cutting cycle at the September meeting, with pre-blackout developments pointing toward a 25bp reduction as opposed to an outsized 50bp.
  • But subsequent media reports that it’s a “close call” have pushed market pricing to imply a split decision vs a 50bp cut, and to MNI’s Markets Team, it suddenly looks more likely than not that Chair Powell will persuade the FOMC to opt for a slightly more front-loaded cutting cycle.
  • The apparent last-minute indecision underlines uncertainty over how the Committee currently sees the likely extent and pace of cuts, beyond “data dependent”, as it assesses what it sees as a shifting balance of risks between rising unemployment and above-target inflation.
  • The new Dot Plot is likely to reflect uncertainty over the path forward, starting with anywhere from 75bp to 125bp of cuts signalled in the 2024 Fed funds median, depending on what the FOMC opts for on Wednesday.
  • The end-2025 rate is likely to show an even wider dispersion, reflecting the uncertainty over the path ahead, but a general consensus that the FOMC would like to return policy to neutral levels fairly quickly.

Note to readers: MNI’s separate preview of sell-side analyst summaries to follow on Monday Sep 16

Keep reading...Show less