Uncertainty around the possible size of Fed rate cut swirls ahead of the decision
In the hours leading to the Federal Reserve’s rate decision, investors remain split on the extent to which policymakers will cut rates.
Fed funds futures trading suggests a 55% likelihood that central bank officials will dial back rates by 50 basis points, according to CME FedWatch. They also imply a 45% probability of the Fed dialing back rates by 25 basis points. Currently, the Fed’s target rate range is 5.25% to 5.5%. One basis point is equal to one one-hundredth of a percent.
Investors should watch what they wish for, according to Aditya Bhave, senior U.S. economist at Bank of America. The firm anticipates a 25 basis point cut on Wednesday, warning that a 50 basis point cut could ultimately be a worrisome sign.
“Risk assets might initially rally on the back of this dovish surprise,” Bhave wrote Wednesday. “But we’d caution investors that the act of cutting by 50bp means the Fed is less confident about a soft landing.”
–Darla Mercado
