As it stands this morning, options market-implied odds of the Fed cutting by at least another 125bps by year-end are about 1 in 4. Since Wednesday’s close, the odds of the Fed cutting by at least another 75bps by year-end have roughly doubled. As it stands this morning, the Eurodollar options-implied odds (fitted to the FF curve & fwd FRA/OIS spreads) of a) the Fed only cutting once more by 25bps in September or, b) the Fed cutting rates by at least another 75bps are about equal.
Fiat policy is successful not by virtue of the exhortation, but by manifestation of that which has been prescribed. It’s one thing to say you’re easing, quite another to convince markets of it.
On the threshold now of the first rate cut by the Federal Reserve since 2008, this question has to be even more vexing for those about to do the cutting. At this point, is a 25bp cut alone enough to “ease”? The simple answer is no.