Since the publication of the latest report on the US labor market (the NFP report), the probability of the Federal Reserve (FED) resuming the cut in the federal funds rate has changed significantly. The FED rate has been stable since the end of 2024, and the implied probability (see CME FED Watch tool below) of a 0.25% rate cut on Wednesday September 17 exceeds 90%.
Is this a trap? Is the market too optimistic?
1) US economy, macro-check: is a rate cut on Wednesday September 17 credible in terms of growth, employment and inflation?
Is a rate cut in September fundamentally credible? The US macro-economic situation is complex, with disinflation on hold against a backdrop of tariffs, but a labor market that is beginning to show signs of weakness. Jerome Powell always defended the monetary status quo until he had confirmation that the underlying PCE inflation rate had moved towards 2%. Tariffs don't seem to be causing a second wave of inflation, but they are putting disinflation on pause, while degrading the labor market with the number of unemployed at its highest level since the year 2021. This is probably why a rate cut could take place on Wednesday September 17.
2) Is a rate cut on Wednesday September 17 credible from the point of view of the balance of power between the 12 voting members of the FOMC?
Let's keep in mind that a rate cut is possible if and only if 7 FOMC members (out of 12) vote in favor of a rate cut. Jerome Powell has no veto power, and he has a single vote like the others. The arrival of Stephen Miran will add another vote for the rate-cutting camp, but the neutral FOMC members will still have to be convinced. The current balance of power among the FOMC's 12 voting members does not yet guarantee a rate cut on September 17.
3) The U.S. 2-year bond yield remains the supreme judge of the market, and the scenario of a rate cut in September is credible as long as this bond yield remains below its 200-day moving average
It is the U.S. 2-year bond yield that best represents the likelihood of the FED taking action on its interest rate. As long as it remains below its 200-day moving average, the scenario of a rate cut on Wednesday September 17 is credible. Ultimately, much will depend on the next report on the US labour market, the NFP report at the beginning of September.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
Is this a trap? Is the market too optimistic?
1) US economy, macro-check: is a rate cut on Wednesday September 17 credible in terms of growth, employment and inflation?
Is a rate cut in September fundamentally credible? The US macro-economic situation is complex, with disinflation on hold against a backdrop of tariffs, but a labor market that is beginning to show signs of weakness. Jerome Powell always defended the monetary status quo until he had confirmation that the underlying PCE inflation rate had moved towards 2%. Tariffs don't seem to be causing a second wave of inflation, but they are putting disinflation on pause, while degrading the labor market with the number of unemployed at its highest level since the year 2021. This is probably why a rate cut could take place on Wednesday September 17.
2) Is a rate cut on Wednesday September 17 credible from the point of view of the balance of power between the 12 voting members of the FOMC?
Let's keep in mind that a rate cut is possible if and only if 7 FOMC members (out of 12) vote in favor of a rate cut. Jerome Powell has no veto power, and he has a single vote like the others. The arrival of Stephen Miran will add another vote for the rate-cutting camp, but the neutral FOMC members will still have to be convinced. The current balance of power among the FOMC's 12 voting members does not yet guarantee a rate cut on September 17.
3) The U.S. 2-year bond yield remains the supreme judge of the market, and the scenario of a rate cut in September is credible as long as this bond yield remains below its 200-day moving average
It is the U.S. 2-year bond yield that best represents the likelihood of the FED taking action on its interest rate. As long as it remains below its 200-day moving average, the scenario of a rate cut on Wednesday September 17 is credible. Ultimately, much will depend on the next report on the US labour market, the NFP report at the beginning of September.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.