The CPI number came in better than expected yesterday at 2.9%, and again the market is discounting with certainty that rates will be lower in September. Wether is 50 or 25 bps, will likely depend on what happens to unemployment, and how quickly it deteriorates from here to September. Raphael Bostic, from the Atlanta Fed, a voting member of the FOMC, has already stated publicly that he’s open to a cut on September 18th. As you can see below, the futures market is discounting a 50 bps cut with a 38% probability after reaching 70% last week in the aftermath of Monday’s meltdown. We’re approaching the end of the cycle, and now the focus will shift from inflation to unemployment to asses the severity of the slowdown.
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