Fed pricing shows 50 bps cut now more likely than not
Sept 16 (Reuters) -Market pricing on the upcoming Fed decision now shows that a 50 bps cut (59% chance) is more likely than 25bps. This a significant shift from the 15% chance that markets attached to a 50bps cut following the release of U.S. inflation data last week.
However, with former Fed officials leaning towards a larger cut and, in particular, financial media outlets suggesting that the size of the cut is close call, this gives the impression that the Fed may be surreptitiously shaping expectations in their blackout period – which would not be first time. As such, a 50 bps cut is very much on the table.
The issue for the Fed is that, given how finely balanced markets are positioned, this will undoubtedly lead to more volatility around the decision - scenario that the Fed often tries to avoid.
Looking at the Reuters poll for this week's Fed meeting - which now looks somewhat outdated - 92 out of 101 economists’ side with a 25 bps cut, with the remaining nine projecting a 50 bps cut. In light of the divergence between market pricing and economists polled, though, there is room for a surprise on either side.
For now, the risk of a larger cut has grown and, as a result, the dollar is on the back foot across the board.
For more click on FXBUZ
Fed pricing for Sept https://tmsnrt.rs/3MKgev9
(Justin McQueen is a Reuters market analyst. The views expressed are his own.)
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