25 or 50?
For markets, the only thing that matters this week is whether the Fed will opt for a 25- or 50-basis-point cut on Wednesday. Traders see that as a very close call, especially after the narrative made it seem for much of the past month that a 50bps cut would be tantamount to the Fed admitting there is some behind the scenes "panic" about the economy thus sparking a selloff in stocks. However this narrative took a back seat in the past week as the market made it clear that the bigger the cut the better (especially with elections looming for a decision that is as much about politics as it is about monetary policy). As a result, rate markets boosted bets on a larger move today after virtually discounting the possibility entirely last week, following several new media trial balloons, with a WSJ op-ed by Greg Ip and a BBG essay by nevertrumper Bill Dudley adding to the "jumbo cut" chorus following last week's reports from Timiraos and the FT.
