Repricing

There has been an incredible repricing in the odds for a rate cut in the September FOMC meeting. As you can see below, we have gone from 57% a month ago, to almost certainty now, with 99.9% probability of a 25 bps cut. Furthermore, treasury secretary Bessent is pushing for 50 bps to compensate for the lack of action in prior meetings. The 2 year treasury bond, the most sensible one to Fed fund rates, is trading at 3.66%, signaling almost 3 cuts from current levels, and the dollar index keeps weakening at an orderly pace. The 10 year Treasury bond yield is also down to 4.21%, which will seem to indicate that the bond market does not see a problem with the rate cuts, should they happen, when it comes to inflation. All this means we’re either set up for a huge disappointment, if Powell decides it’s still not time to cut, or the market will reinforce the narrative that tariffs are not inflationary and that a monetary stimuli is what we need now to keep the economy going at full speed. Trump’s goal for Fed Funds is 2%, with no economic justification. And by looking at how the market is behaving, that’s what we’re going to get from now till December.

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