Traders see a chance the Fed cuts by a half point

Group 1 - The Federal Reserve is expected to lower the overnight funds rate by 25 basis points, with an 88% probability according to the CME Group's FedWatch tool [2] - There remains a 12% chance for a half-point reduction, similar to the September meeting in 2024, as traders consider the possibility of rate cuts [3] - The August jobs report, showing a nonfarm payroll increase of only 22,000 and an unemployment rate rise to 4.3%, has shifted market sentiment towards Fed easing [3][4] Group 2 - Citigroup economist Andrew Hollenhorst suggests that the soft jobs report will drive consensus for rate cuts this month and potentially further cuts in the coming months [4] - While some FOMC members may support a larger cut, the majority are not expected to favor a 50 basis point reduction [5] - Citi anticipates that the FOMC will cut rates at each of its next five meetings, focusing on labor market weakness despite ongoing inflation concerns [6] Group 3 - Nomura economist David Seif believes the August employment report strengthens the case for a series of insurance cuts, but more evidence of labor market stress is needed for aggressive easing [7] - Current market expectations indicate a rate cut next week, a pause in October, and another cut in December [7] - The Fed faces a challenging situation with inflation above target and a weak jobs report, complicating its dual mandate of stable prices and full employment [8]