Tuesday, September 17, 2019

Odds the Federal Reserve Will Cut Rates This Week is Collapsing

A week ago, based on trading in the Fed Funds futures market,  Fed Funds traders put the odds of a rate cut by the Federal Reserve this week at 94.6%.

The odds have now declined for such a rate cut, based on Monday's trading, to 65.8%.

The trigger causing the reversal appears to be the spike in oil prices after the attack on Saudi Arabian oil facilities which pushed oil prices up by more than 12% in trading on Monday.

The thinking is that the spike in oil will boost price inflation on its own without Fed help and the only driving reason the Fed was going to cut rates was to boost price inflation which is now occurring on its own.

The idea that the Fed should be driving price inflation higher is a peculiar idea to begin with, but what twists the minds of Fed members will take as a result of the spike in oil prices is difficult to determine.

Of course, the President has his own unique take on what the Fed should do:

My guess is that Trump can put pressure on Federal Reserve Board Chairman Jay Powell through Treasury Secretary Steve Mnuchin.

Thus, I am leaning toward the likelihood that the Fed will announce on Wednesday a cut in the Fed Funds rate by 25 basis points, but I am not certain.


1 comment: