A trade war certainly changes things
A Fed cut in September is fully priced in and there is a growing chance of a 50 basis point cut.
The Fed funds futures market is pricing in a 31% chance that the Fed will move two notches. Prior to Trump's announcement of tariffs, the market was only pricing in a 58% chance of a single 25 bps cut.
The market is seeing deep cuts further out as well. Two more cuts are 78% priced in by the October meeting and 91% before year end.
Three more cuts before year-end to 1.25%-1.50% is now a 55% likelihood and a near-certainty within 12 months.
