Fed's Rate Decision Next Week: 25 or 50 Basis Point Cut?

According to schedule, the Federal Reserve will release its interest rate decision and economic projections summary next Thursday at 2:00 PM. Traders are pricing in nearly equal probabilities for a 25 basis point and a 50 basis point rate cut next week. This shifting bet reflects one of the key questions facing the market today: will the Fed aggressively cut rates to combat labor market weakness or take a slower pace to remain on the sidelines?

Federal funds futures are pricing in more than two percentage points of rate cuts in the next 12 months, a scenario rarely seen outside of recessions. James St. Aubin, Chief Investment Officer at Ocean Park Asset Management, which manages $5.3 billion in assets, said, "With the S&P 500 near all-time highs and credit spreads narrowing, it seems like a large rate cut to kick off the easing cycle would only happen if the Fed knows something that the rest of us don't. I think a 50 basis point cut could do more harm than good in terms of market sentiment."

Regardless, even a 25 basis point cut next week could be seen as a dovish move, especially if Powell doesn't push back against expectations of one or even two 50 basis point cuts in the final two meetings this year.