Joe Tigay Fed Rate Cut Looms: What to Expect
The Fed is about to make a historic move
This week, the Federal Reserve will cut interest rates for the first time since the COVID-19 pandemic. This is a big deal, as it marks the beginning of a new economic cycle. The market has been anticipating this change, but there’s still a lot of uncertainty.
A Surprising Twist
What’s unusual about this week’s meeting is that we don’t know exactly how much the Fed will cut rates. While everyone expects a cut, it’s up in the air whether it will be a 0.50 or 0.25 basis point cut. This is a departure from the past, as under Jerome Powell’s leadership, the market has typically had a pretty good idea of the Fed’s next move.
Volatility and Market Indicators
This uncertainty has led to increased volatility in the market this week, but it’s still lower than last week. Some market indicators, like the skew index, suggest that volatility could rise after the Fed meeting.
Additionally, VIX futures data shows that traders are expecting volatility to decrease before the meeting, which is surprising to me.
Market Trends and Post-Fed Expectations
Despite the volatility, the overall market trend remains bullish. We’ve broken through a key resistance level, but the market is still capable of reaching new highs. However, a slower pace might be healthier in the long run.
So, what can we expect after the Fed’s decision? Of course, everyone will be closely watching the FOMC meeting. The Fed will be cutting rates for the first time in four years, and the size of the cut will be crucial. Personally, I’ve been leaning towards a 0.25 basis point cut because I believe the economy is strong enough and the Fed wants to avoid fueling inflation. However, the Fed’s recent signals suggest they might be less concerned about inflation and more focused on job growth.
Bullish and Bearish Scenarios
There are a few potential outcomes:
- Bullish:
- The Fed cuts by 0.50 basis points but reassures the market that the economy is strong and the cut is precautionary.
- The Fed cuts by 0.25 basis points and indicates that more cuts are coming.
- Bearish:
- The Fed cuts by 0.50 basis points and signals that the economy is slowing down.
- The Fed cuts by 0.25 basis points but expresses concerns about inflation.
Overall, I believe the bullish scenarios are more likely. However, the market can be unpredictable, so it’s important to stay informed and be prepared for any outcome.
