Quick Take: Change of View – Fed to Cut 50bp This Week

I am changing my Fed call to a 50bp cut this week, 100bp in 2024 and 150bp in 2025, from previously 25bp, 75bp and 100bp respectively.

A key reason is that market pricing of 50bp has increased following the WSJ’s Timiraos stating that 50bp was a close call. If the Fed cuts less, they will likely get a negative market reaction. That is not what they are looking for at this stage.

In addition, the FT’s Smith had a Sunday follow-up piece to his Friday article that suggested political risks were a key factor for the Fed decision. By contrast, the follow-up piece argues that political risks are manageable. Political risks were a key reason for my earlier 25bp call.

Market pricing implies that the Fed is more worried by the economic outlook than I thought, and that is why I am also changing my calls for 2024-25.

Dominique Dwor-Frecaut is a macro strategist based in Southern California. She has worked on EM and DMs at hedge funds, on the sell side, the NY Fed , the IMF and the World Bank. She publishes the blog Macro Sis that discusses the drivers of macro returns.

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