This week promises to be of great importance for global financial markets, with traders eagerly awaiting the Federal Reserve meeting on Wednesday, September 18.
Expectations for a 0.5% rate cut have grown, making it the most likely scenario. This morning, probabilities are distributed as follows:
0.5% rate cut: 59%
0.25% rate cut: 41%
You can monitor how these probabilities evolve daily on the CME website.
With a 0.5% rate cut now seen as the most likely scenario, what outcomes can we expect?
SCENARIO 1: 0.5% rate cut
In this case, where market expectations are met, attention would shift to the subsequent press conference. Markets may rise or fall based on the outlook for future rate cuts. If the FED takes an aggressive stance on easing monetary policy, stock markets could rise, and the Dollar may weaken. However, if the central bank adopts a more cautious approach, even a 0.5% cut might not be enough to support markets, which could react negatively.
SCENARIO 2: 0.25% rate cut
If a more modest rate cut is announced, the market reaction could be immediate, with the Dollar strengthening and stock markets weakening. Traders could be disappointed by a FED that is too cautious in responding to warning signs from recent macroeconomic data. At that point, attention would again turn to the press conference, where Powell's willingness to consider more aggressive future rate cuts would be crucial to support the markets.
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