How Big?

The Fed is going to cut interest rates for the 1st time in a long time... 1/4%, 1/2% or more???

The Fed’s biggest interest rate call in years happens Wednesday. Here’s what to expect

PUBLISHED TUE, SEP 17 20243:50 PM EDTUPDATED MOMENTS AGO

Jeff Cox@JEFF.COX.7528@JEFFCOXCNBCCOM

KEY POINTS

• This week’s gathering of the central bank’s Federal Open Market Committee carries an uncommon air of mystery.

• Will it be the traditional quarter-percentage-point, or 25-basis-point, rate reduction, or will the Fed take an aggressive first step and go 50 basis points, or half a point? Fed watchers are unsure.

• Beyond the quarter vs. half debate, this will be an action-packed Fed meeting, with updates on projections for rates cuts in the future as well as adjustments to economic estimates.

Federal Reserve Chairman Jerome Powell takes a question from a reporter during a news conference following a Federal Open Market Committee meeting at the William McChesney Martin Jr. Federal Reserve Board Building on July 31, 2024 in Washington, DC. 

Andrew Harnik | Getty Images

For all the hype that goes into them, Federal Reserve meetings are usually pretty predictable affairs. Policymakers telegraph their intentions ahead of time, markets react, and everyone has at least a general idea of what’s going to happen.

Not this time.

This week’s gathering of the central bank’s Federal Open Market Committee carries an uncommon air of mystery. While markets have made up their collective mind that the Fed is going to lower interest rates, there’s a vigorous debate over how far policymakers will go.

Will it be the traditional quarter-percentage-point, or 25-basis-point, rate reduction, or will the Fed take an aggressive first step and go 50, or half a point?

Fed watchers are unsure, setting up the potential for an FOMC meeting that could be even more impactful than usual. The meeting wraps up Wednesday afternoon, with the release of the Fed’s rate decision coming at 2 p.m. ET.

“I hope they cut 50 basis points, but I suspect they’ll cut 25. My hope is 50, because I think rates are just too high,” said Mark Zandi, chief economist at Moody’s Analytics. “They have achieved their mandate for full employment and inflation back at target, and that’s not consistent with a five and a half percent-ish funds rate target. So I think they need to normalize rates quickly and have a lot of room to do so.”

Pricing in the derivatives market around what the Fed will do has been volatile.

WATCH NOW

VIDEO05:07

Paul McCulley says, he expects a total of 200 bps cuts in 2025

Until late last week, traders had locked in on a 25-basis-point cut. Then on Friday, sentiment suddenly shifted, putting a half point on the table. As of Wednesday afternoon, fed funds futures traders were pricing in about a 63% chance of the bigger move, a comparatively low level of conviction against previous meetings. One basis point equals 0.01%.

read more at

https://www.cnbc.com/2024/09/17/the-feds-biggest-interest-rate-call-in-years-happens-wednesday-heres-what-to-expect.html