The market has been anticipating tomorrow’s conclusion of two-day Fed announcement which comes out at 1:00 central. The market has priced in a .25% rate cut which would be the first rate cut we have in the U.S. since the financial crises over 10 years ago. There has been a lot of jawboning over the last month as to how much the fed will cut, while most agree that .25% is priced in, but there have been calls for a .5% cut as well. Now the problem that faces the current Fed has two extremely important items to deal with.

First, chairman Powell continues to face pressure from Trump to lower and continue to lower rates even through the economy is still producing very positive economic numbers. Last month’s bigger than expected non-farm payrolls was much stronger than anticipated and generally most numbers that have come out in July have come in better than expected. Secondly, its most unusually to cut rates with the stock market near all-time highs and the unemployment rate near fifty-year lows, but as stated above the market has priced in a .25% cut and if Powell suggests this is a one- time deal, like an insurance cut and not the start of a major easing cycle, we could very well see buy the rumor, sell the fact type of trade. In my opinion, the problem with the fed cutting tomorrow is that they only have 2.25 basis points to work with so why not save some bullets for when you really need. They don’t have much to work with on cutting, unless they want to see rates in the U.S. go negative like Europe which I don’t think that’s coming any time soon.

E-mini S&P 500 Sep ’19 Daily Chart
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Greg Perlin

Senior Market Strategist
Greg is a former Chicago Board of Trade member. He was an independent floor trader, pit broker and floor broker with Cantor Fitzgerald. Some of his clients included traders from Morgan Stanley and Lehman Brothers. He also acted in the capacity of desk manager for the morning trade desk. Greg was part of the elite Lind Plus Division for 10 years before joining RJO Futures in 2011.
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