The Fed will cut interest rates by 50bp tonight
MUFG expects a 60% probability of a hawkish 50bp rate cut tonight. Its guidance and information suggest that the FOMC is taking a degree of insurance to return the monetary policy stance to neutrality in a timely manner, given that the focus of the dual mandate has shifted from excessive inflation to excessive unemployment. A 50bp rate cut now makes sense, as the FOMC makes economic forecasts more clearly outline to the market that they are preemptive, rather than thinking they are behind the curve. Of course, this can be shown by the median of the dot plot for 2024, which means a total rate cut of 100 basis points, with two more rate cuts in November and December, each of 25 basis points. In this scenario, Powell will say that the 50 basis point action is the Fed catching up, but also say that the weakness in the overall data is more important than the recent CPI performance.
