Market's Expectation for Rate Cut Rises Rapidly

Summary

Market expectations for a rate cut have surged rapidly, driven by comments from ‘Powell ally’ Williams, suggesting a potential Fed rate cut in December. This has led to a significant increase in the probability of a rate cut, now seen as high as 81%.Wallstreetcn+ 2

Impact Analysis

So they’re basically admitting that the market is now pricing in a December rate cut with high confidence, jumping from 29% to over 80% in just a week. This shift was catalyzed by Williams’ comments, which the market interpreted as a trial balloon from Powell. The timing is crucial—right before the December meeting, suggesting the Fed might be preparing the ground for a policy shift. The magnitude of this expectation change is massive, indicating a potential pivot in monetary policy. If the Fed does cut rates, expect a rally in long-duration bonds and a boost for equities, particularly tech stocks, which have been sensitive to rate expectations. However, if Powell wants to avoid a cut, he needs to act fast to manage expectations. Watch for any Fed communications that might attempt to temper these expectations. For now, positioning in bonds and tech stocks could be advantageous, but be wary of any sudden shifts in Fed rhetoric.Wallstreetcn+ 3