The Feds are unlikely to cut rates this week because of 3 important factors. The next G20 summit could see China and USA reach a viable trade agreement. Another reason is that the US does not wish its decisions to be considered as influenced by financial markets or Trump’s pressure. The final reason is that it doesn’t want the December hike to be written off as a mistake.
Lindsey Peigza of Stifel stated that Feds didn’t want to be bullied into a move. For them, all that matters is their data alone. However, Wall Street is desperate for cuts. 21% probability of a rate cut is being shown now compared to 30% during the morning yesterday. July cut chances are at 85% and 61% chances are given for 3+ rate moves by the Feds before this year ends.
The FOMC meeting will probably trigger a rate change, where there would be a submission of members’ expectations about target rates in upcoming years. Fed projections and market scenarios are very divergent, stated Jeffrey Gundlach of DLC.
Gundlach had engaged in a straddle option trade in May, netting him 22% gains. Trump has often lambasted the bank for its hikes. However, Feds are worried that their credibility could be down if they reverse December’s hike. The Fed is now trying to do away with B/S programs by September. Rate hike possibilities have been declared zero by officials.
Quincy Krosby of Prudential Financial stated that rate cuts could happen this year, although it would be slightly worrisome for them as they hiked rates twice this year. Richard Clarida and Powell’s actions have convinced most that a rate cut is underway. They were laying the groundwork for the rate cut, Krosby said.
Stocks have been up though. The DJIA is up over 5% this June. If the market keeps strong and China-US tensions ease up, rate cuts could be avoided.