A 25 bps rate cut remains a done deal
- August non-farm payrolls +130K vs +160K expected
- What we learned from Powell in Zurich: Six takeaways
Payrolls being a more "as you were" kind of event wasn't largely unexpected, but the fact that Fed chair Powell didn't push back against any rate cut pricing in his speech means that a 25 bps rate cut next week is basically a surefire thing.
Essentially, market pricing didn't move all too much with Fed fund futures having already fully priced in a 25 bps rate cut going into the event. However, Powell did not give out any strong messages about a 50 bps rate cut so that should be off the table; markets have scaled back that pricing from ~12% to ~4% currently.
So, what does this mean in the buildup to the upcoming Fed decision?
We're now in the FOMC blackout period so there won't be any fresh changes in sentiment to detract from a 25 bps rate cut or exacerbate odds a 50 bps rate cut. Sure, there is economic data still to follow but I won't expect that to move the needle here.
As such, markets will stay on edge in anticipation of any changes to the Fed's communication but I reckon they are most likely to stick with the same kind of messaging that we saw at the end of July.
If anything else, perhaps the updated economic projections and the latest dot plots may offer something for markets to scrutinise. In any case, I don't see much else that markets can learn about the Fed going into decision day.
