What is the market looking for
I don't fully trust the Fed funds market. The odds of a 50 basis point cut today seem to me to be divorced from reality and/or skewed by some massive hedges. You would think someone would take the other side but the mechanics of the market might discourage that. I'd argue that FX in the past 10 days has shown a clear preference to USD buying, which is a better indication that cut expectations are coming down.
All that said, here's what's priced into Fed funds. The market is 100% behind a cut today and the only question is whether it's 25bps or 50bps. The latter gets a 17% probability. However the chance of 50 or more in total at the Sept 18 meeting rises to 73.6%. Looking a year out, the odds of four cuts or more are at 54.7%.
