The US Federal Reserve's rate decision is highly anticipated this week, with the market expecting a 25 basis point cut. According to the CME FedWatch tool, the probability of a cut stands at around 87.2%, driven by softer economic data and dovish remarks from Fed officials
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Key Factors Influencing the Decision
Easing Inflation Expectations_: Inflation has shown signs of moderation, supporting the case for a rate cut.
Softening Employment Trends_: Labor market indicators, such as slowing job gains and rising unemployment, suggest a need for accommodative policy.
Strained Consumer Credit_: Increasingly strained consumer credit is another factor contributing to the expected rate cut
Possible Outcomes:
A 25 basis point cut, bringing the federal funds target range to 3.50-3.75%
Potential further cuts in January and April, projecting a terminal rate of 3.0-3.25%
Market Reaction:
Equities may see a boost, with investors favoring sectors like technology and consumer discretionary
Bond yields could tick down, with investors seeking safer assets
The dollar may strengthen if rates are held steady
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