25bps cut expected

  • Fed is expected to cut by 25 basis points
  • Market has started to reprice the likelihood of a 50bps cut by December
  • Oil spike may have some bearing on the committee’s decision

The FOMC meet today to discuss monetary policy going forward.

Currently EFFR is indicating that that the Fed will no longer cut by 25bps with Fed Funds showing that, since yesterday, the odds have dropped to 45% from 63%.

This comes, however, after the spike in the overnight repo rate which is distorting the probability data (Fed still likely to cut).

The Fed will, though, likely look to see whether the rise in the oil price during the front part of this week will be sustained and whether this will feed through to headline inflation.

5y5y inflation swap prices have spiked and its likely the Taylor Rule will be reflecting higher rates at the moment (yet this does not mean the Fed will act upon this).

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