No wavering on a cut
The market has settled into a very comfortable position on a 25 basis point cut next Wednesday. The market is fully priced for a cut with a 4.5% chance of a move in the 50 basis point variety.
The better intrigue is on what the FOMC signals for October. Right now the market is almost 50/50 on whether another cut will come then. There is a slight bias towards a second cut (or more) at 58% compared to 42% for a pause until December, when the odds rise to 81%.
The terminal rate on this easing cycle is highly variable with decent pricing from 0.75% all the way to 1.75%. I struggle to see how Powell will signal another October cut but his speech in Zurich was telling on the terminal rate. He highlighted how the Fed was increasingly concerned about low inflation and I think his pre-occupation in the year ahead will be getting it above 2%. That could mean a slower, but steadier easing cycle.