Is the Fed's rate cut in September a done deal? Don't celebrate too soon
CME's "FedWatch" shows that the probability of a 25 basis point rate cut by the Fed in September has soared to 82.6%, leading to a wave of excitement in the market. Behind this are weak non-farm data, signs of economic slowdown, and Trump's political maneuvering to install loyalists following the resignation of a Fed governor.
A rate cut seems beneficial, but there are many hidden risks:
If the Fed only cuts by 25 basis points instead of the 50 basis points the market expects, it could trigger a sell-off.
Political interference may weaken the independence of the central bank.
Long-term easing could sow the seeds for a rebound in inflation.
The market has overly bet on a rate cut, but monetary easing addresses symptoms rather than root causes. If the cut does happen in September, the real test will just be beginning after the celebration.
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