Happy Fed day.
We're just two hours from the rate decision but the market isn't expecting any big drama. The derivatives market is 97% priced for no change from the 5.25-5.50% Fed funds target rate.
Eyes are on September, where 27.6 basis points of cuts are priced in, or a full rate cut with a small chance of 50 bps, highlighting the possibility the Fed will cut today or fall behind the curve.
Looking to year-end, there are 68.4 bps of cuts priced in -- well above the one cut signalled in the Fed's latest dot plot.
Stretching out to June 2025, the market is pricing in precisely 150 bps in cuts, and that would take Fed funds to 3.75-4.00%.
