...according to WSJ's Nick T, the Fed is in a conundrum on whether to do 25bps or 50bps.
...my take is that the Fed would do 25bps and laying optimism for another 25bps or higher as the data warrants in Nov. But those who let their politics influence their decision could root for a 50bps to give Harris a boost.
...and there's a chance the market's recent upbeat could get a dose of reality check next week when the Fed does 25bps instead and continues to err on the conservative side fearing that a market revival lifting animal spirits could well result in induced demand spending to lift inflation higher again.
...its been a great week for gold/silver but I had a look back that the last couple of times we had a strong week like this, it just lasted another week at best. But then, this time could be different because the Fed is cutting rates. So precious metals have had waited for a long time for this moment.
Dow rallies on renewed hopes for half-point rate cut Timothy MooreBefore the Bell editor
Updated Sep 14, 2024 – 7.02am,first published at 4.29am
US shares rallied on renewed expectations that the Federal Reserve could opt for a half percentage point cut in interest rates next week after all. Oil’s rally faded as did Hurricane Francine’s impact on US output. The S&P 500 advanced for a fifth session in a row.
On Wall St at 4pm: Dow +0.7% S&P +0.5% Nasdaq +0.7%
The potential for a large rate cut helped drive utilities, materials and industrials higher. Twenty-four of the Dow’s 30 components were higher; Boeing fell after its unionised workers went on strike. Techs mostly lagged.
“We reaffirm that we see a real shot of a Fed 50 basis point cut in September,” Evercore ISI said.
“While we carefully assess that we still do not have the evidence to go clearly odds-on, our gut instinct is it may well be heading that way, and we are alert to unfolding dynamics that could move 50bp more clearly odds-on in the period ahead.”
European stocks also rose on Friday, with the regional benchmark marking its best week in a month, Bloomberg reported. Danish stocks hit an all-time high, helped by this year’s rally in Novo Nordisk.
CME Futures put the probability of a 25 basis point cut at 55 per cent and that of a 50 basis point cut at 45 per cent as of 5.15pm New York time. The previous day it was 72-28 for a quarter point move.
“If the [Fed] is really uncomfortable with market pricing and if such pricing remains on the fence, then the possibility of putting out a message into early next week remains significant,” Scotiabank’s Derek Holt said.
TD Securities’ Andrew Hencic said he thinks a 50 point cut would be “premature”.
“Between this week’s CPI report showing unexpected strength in core consumer prices, the upside surprise in the producer price index, and a labour market that continues to steadily add jobs, there is enough strength to suggest aggressively easing monetary policy is not yet warranted,” Hencic said. “Our view remains that a 25 basis-point cut next week is the most likely outcome, with two more cuts coming by year-end.”
Wells Fargo economists said they expect a 25 point cut next week, though they are reluctant to close the door on a half point move.
More important to Wells Fargo, the economists argue is what lies further ahead for US rates. “Beyond next week’s meeting, material monetary policy easing is en route.
“With the real rate approaching 3 per cent, the FOMC needs to cut the nominal fed funds rate considerably in coming months to get back to neutral. Otherwise, policymakers risk driving the economy into recession with an overly tight stance of monetary policy.
“Accordingly, we look for the Committee to reduce the fed funds rate to 3.00 per cent-3.25 per cent by July of next year, which is in the vicinity of what many observers, including us and numerous members of the FOMC, consider to be neutral.”
