Chance Of Fed Cut Is Underpriced

By Bryan Rich

June 17,  5:00 pm EST

We’re on Fed watch this week.

As we discussed last week, if the Fed wants to surprise markets and get maximum gain from a rate cut, it would serve them well to cut rates on Wednesday, and not wait until the July meeting.

As we head into the meeting, the market is pricing in just a 20% chance of a cut.  That seems well underpriced, given that there’s a near certainty of them moving next month.  A surprise cut would be rocket fuel for the stock market.

With the Fed looking to reverse course on monetary policy, more than a decade removed from the failure of Lehman Brothers,  we still still have 60% of global central banks in easing mode, with full-bore quantitative easing in Japan.

That said, the Fed is looking for what will likely be an “insurance cut” — just to solidify the economic expansion.  And if a Fed cut is followed by trade resolution, the U.S. economy could/should be in for a boom period.  And that would likely flip the switch on global monetary policy.

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