This is the nominal interest rate (white) and the real interest rate (green) over the past 20 years. If there is no interest rate cut tonight, it is equivalent to a disguised interest rate hike, because while the CPI has declined significantly, the real interest rate has risen.
In the high interest rate environment maintained over the past year, the real interest rate has fluctuated between 2% and 2.5%, which means that this interest rate level may be what the Federal Reserve considers to be "sufficiently restrictive";
After the current sharp decline in CPI, the real interest rate has exceeded this range. I personally think it is still necessary to make adjustments, at least to maintain the previous real interest rate level;
As for whether it is 25 basis points or 50 basis points, I prefer 25, but if you look at the 3M Treasury yield, it seems that the market has already priced in 50 basis points, and since the real interest rate is 3%, a 0.5% cut can just restore it to the original range.
In short, I don’t think there is a possibility of not cutting interest rates. The current focus of the game is on the extent of the interest rate cut. Historically, such a situation where there is such a clear divergence before the FOMC meeting is very rare and worthy of attention.
