Rate cuts in the Fall

While we are still digesting the Fed’s latest rate cut last week, the market is already discounting another cut for the October 29th meeting. There is still more than 4 weeks to go, but there is no meeting in November, which means that if the Fed has indeed pivoted to a more dovish stance, they will need to act on October as well. And the odds are confirming this thesis. If you look at the chart below, the probability of another 25 bps rate cut in October is now 94%, becoming the central scenario. It’s important to remember that there was no consensus regarding a rate cut in September, and that positions regarding monetary policy are very different among members of the FOMC, which makes the probability for the October meeting even more remarkable. The GDP report on may shake that dovish view, since the U.S. economy is expected to grow at 3.5% in real terms, or 6.4% nominal, which can be interpreted as an economy that is running hot. The bond market is relatively quiet, but good keeps making new highs.

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