Regular Alt‑M readers are no doubt looking forward to the FOMC’s announcement next Wednesday. But I doubt they’ll be sitting at the edges of their seats between now and then, much less biting their fingernails.
Markets have, after all, been anticipating a modest Fed cut ever since the committee’s last meeting, when the FOMC chose not to cut just yet, but to “wait and see.” During his recent appearances before the House and Senate, Chair Powell only seemed to reinforce the general belief that “wait and see” meant “we’ll cut in July.” Finally, since the relatively dovish Jim Bullard, the lone dissenter in June, who favored a rate cut then, still thinks that a 25 basis point cut should suffice, it hardly seems likely that the Fed will cut its target by more than that amount. In short, it’s no surprise that futures traders now see a quarter-point cut as all but certain.
But it doesn’t follow that next week’s FOMC decision will be altogether free of suspense. On the contrary: there’s still a big question-mark hanging over it. The question isn’t whether the Fed will lower its rate target, and by how much. It’s whether market rates will respond in kind.