![Markets no longer think the Fed needs to cut interest rates aggressively](https://news7g.com/wp-content/uploads/2024/08/108014486-1722451866230-gettyimages-2164053810-5ah01917-780x470.jpeg)
In just a few short days, the market has lost some of the urgency of a Federal Reserve rate cut. Earlier in the week, there were even some calls for an emergency mid-session rate cut. At the very least, the market is pricing in a near-certainty for the Fed to cut its benchmark rate by at least half a percentage point. Now what? Markets are pricing in a coin flip between a quarter-point or half-point cut as confidence grows that the economy is not headed into recession and the Fed is not too far behind the curve. “I still expect the slowdown to prompt the Fed to ease monetary policy, but the market reaction is to suspect that we’ve suddenly flipped the switch and the economy is in recession,” said Steven Wieting, chief economist and strategist at Citi Wealth. While he expects the labor market to continue to slow, Wieting said growth is being supported by fiscal stimulus while the consumer remains in relatively good shape, “and that’s not a condition where we tend to see a recession unless there’s a new shock.” A brief panic that began on Aug. 1 and continued into early this week was fueled by an unexpected surge in layoffs and a weak ISM manufacturing index. But a Labor Department report on Thursday showed initial jobless claims fell, and a separate ISM report this week pointed to stronger-than-expected growth in the services sector. As a result, market pricing on Monday for an 85% chance of a 50 basis point cut in September has shifted to 54% on Friday, according to CME Group’s FedWatch gauge of 30-day federal funds futures. Markets are still pricing in about a 68% chance of a full percentage point cut by the end of 2024, but even that is down from Monday’s near-certainty of a 1.25-point move. Wharton professor Jeremy Siegel was one of the loudest voices for the Fed’s aggressive action, calling for an emergency cut on Monday. But even he has softened his tone, now only encouraging Chairman Jerome Powell and his colleagues to ease policy as quickly as possible, even though the move between meetings is no longer necessary. “There’s no way he can do that without things breaking. I don’t think things will break,” Siegel said in an interview Thursday. “As soon as they can get below 4%, all the better.” The Fed has kept its benchmark interest rate in a range of 5.25% to 5.50% for more than a year. Powell and several other central bank officials have indicated in recent days that they are open to cutting, although they have not provided details on timing and size.