Randall W. Forsyth, Barron’s, nicely summarizes the thinking going into this week’s Fed meeting, here… (Hat tip to The Big Picture, here)… Of course, most chat ahead of Fed meetings reminds me of an old Carl Perkins tune, Honey Don’t, covered by the Beatles:
“Well how can you say you will when you won’t,
Say you do, baby, when you don’t?”
Here is Forsyth:
“What seems out of sync with the rising calls for rate reductions is that the U.S. economy and stock market both seem to be doing better than OK, thank you, as the expansion and bull market celebrate their 10th anniversaries. Unemployment is around the lowest level in a half-century. The worst thing seems to be that inflation continues to run slightly below the Fed’s 2% target, a problem that might strike some as similar to being too rich or too thin.
Nevertheless, the federal-funds futures market is pricing in three 25-basis-point reductions in the central bank’s target, from the current 2.25% to 2.50% range, by as soon as year end. (A basis point is 1/100th of a percentage point.) A move is unlikely at this coming week’s confab, although the futures market puts a nontrivial 25.8% chance for a reduction. In contrast, there’s an overwhelming 86.4% probability of a cut at the July 30-31 FOMC meeting, according to CME Group’s FedWatch site. Futures traders have priced in additional 25-basis-point decreases at the Sept. 17-18 and Dec. 10-11 meetings.”
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