The market now sees a 50-bps interest-rate cut at this week’s Federal Reserve meeting as more likely than not. But a double-sized rate reduction would send a mixed message on the soft landing the Fed is hoping for, while also potentially leading to an acceleration of liquidity issues in the repo market.
After a couple of strategically placed newspaper articles in the “black-out” period on communication, the Fed has laid the ground for a 50-bps reduction in rates to kick off the cutting cycle, with the market pricing a ~70% chance this is what happens.