On 10 July, Jerome Powell used his congressional testimony to pretty much telegraph a Federal Reserve rate cut for the 31 July meeting. The market subsequently toyed with the idea of a 50 bps cut for a brief while when Williams and Clarida batted for proactive easing, before Bullard came and spelt it out for the market – 25 bps cut is apt.
While the 25bps vs 50 bps cut and aggressive vs gradual Fed rate cut path continues unabated in the markets, there is also a sizeable section of investors and traders who are a little puzzled by the need for the Fed to cut rates when the economy is still holding up quite well. That feeling was reinforced with the solid run of economic data prints in US lately with upside surprises on NFP, retail sales, Core CPI, manufacturing output, and finally with the better-than-expected Q2 GDP growth last Friday.
US GDP QoQ