Markets are Sure the Fed Will Cut in September, but the Path from There is Much Murkier

• Friday’s booming rally turned into Monday’s reality check as investors weighed just how aggressive the Federal Reserve will be on lowering interest rates and how the moves might impact the broader business and economic climate.
• Chair Jerome Powell, in his annual address at the Jackson Hole, Wyoming, symposium, gave Wall Street hope of easier days ahead when he said conditions “may warrant adjusting our policy stance,” which is generally seen as “Fedspeak” for cutting rates.
• Stocks soared while Treasury yields plummeted on the news as the knee-jerk reaction took hold for a rate reduction when the Federal Open Market Committee issues its next decision on Sept. 17.
• However, cheer turned to caution Monday as market experts weighed what happens next, even if a move next month is baked in. Stocks were mostly lower, and shorter-maturing Treasury yields, which are more sensitive to Fed action, moved higher.
• Traders on Monday were pricing in a near-certainty of a September quarter percentage point reduction from the Fed’s current target rate, currently around 4.3%. The implied probability of 82% was only slightly higher than a week ago but well above the 62% odds of a month ago, according to the CME Group’s FedWatch measure of futures prices. However, there is less certainty from there.
• The implied probability for another cut in October was just 42%. That second cut is about fully priced in for December, but there’s just a 33% expectation for three total moves this year.

(Source: CNBC)