In a few hours we should have entered into a new regime where rates are set to decrease to avoid a recession. As of this morning it is not clear yet if the Fed will lower rates by 25 or 50 bps. As a matter of fact, if you look at the chart below, this FOMC meeting has the honor of being the most uncertain of the last 10 years. The natural tendency of the Fed would be to start with a prudent 25 bps cut, but the odds point to a bigger cut. If this does indeed happen, and they start with a bigger cut, they will need to explain the rationale behind it to a market that wants to believe nothing is broken and a soft landing is coming. Equity futures are flat and bonds are on waiting mode as well. Markets will likely take a nap until 2 pm where they’ll wake up to a different environment. As of this morning, there’s a 66% chance of a 50 bps cut.
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