Cut or not cut 50 basis points.
As the Federal Reserve’s September meeting approaches, JPMorgan reiterated its call for a 50 basis point rate cut, scheduled for Wednesday at 2 p.m. ET. Following Nick Timiraos’s article highlighting the Fed’s predicament, market odds have shifted from 80-20 to a roughly even 50-50 split.
Former Fed members Dudley and Mester have both made their views known, with Mester openly supporting a 50 basis point rate cut and Dudley openly supporting it. As the Fed enters a period of blackout, market watchers are wondering whether “old friends and family” may be sending subtle messages on behalf of the Fed chairman.
The spread between the federal funds rate and inflation supports a rate cut, and the Fed is aware of the lagging effects of policy changes. The latest CPI and PPI data were no surprise, but analysts are expecting a core PCE increase of 0.13-0.17% over the month by combining evidence from each, suggesting lower inflation.
Political developments will be closely watched, but experts expect a split in Congress, which could include potential changes.
The turnaround helped the stock market this week. The Nasdaq is now up 6.14% this week, erasing last week’s -5.77% decline. The gain is the biggest since October 2023, when the index rose 6.61%. The S&P is up 4.20% this week, roughly equaling last week’s -4.25% decline. This week’s gain is also on track to be the best in 2024 (and the best since October 2023).
In the US debt market,
- The yield on the 2-year note fell another -7.6 basis points this week after falling -27 basis points last week.
- The yield on the 10-year note fell -6.8 basis points after falling -19.5 basis points last week.