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Traders work on the New York Stock Exchange on August 22, 2025 in New York.
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A flowering rally on Friday turned into a validity check on Monday, when investors weigh how aggressive the federal reserve system will be reducing interest rates and how steps can affect a wider business and economic climate.
Chair Jerom PowellIn its annual address in Jackson -tulin, Wyoming, SymposiumThe Wall -Stretch hopes for lighter days ahead when he said that the conditions “could express our political position”, which is usually considered “federal” to speed.
The reserves flew as long as the Treasury fell in the news, when the reaction to the knee claimed a decrease in the rate when the open market federal committee issued its next decision on September 17.
However, Weser turned into caution on Monday when the market experts weigh what next, even if the move next month was baked.
“I am on the slow side more than the faster side when the Fed is going,” said Jason Grannet, Chief Investment CEO in BNY. “He certainly transported the door to the door, unlike it to expel it in September.”
Traders on Monday prices in an almost endless reduction of the interest point from the current Fed target rate, which currently about 4.3%. According to 62% chances a month ago, the matches by 82% were only slightly higher than 62% chances a month ago, CME reports Fedwatch A measure of futures prices.
However, from there less certainty.
Potential slow pace forward
The alleged probability of the next reduction in October was only 42%. This second incision is a complete price for December, but this year there is only 33% of waiting for three steps.
“I think the data between today and the September meeting can be played,” Granet said. “So, the question will start to focus around the pace.”
Skeptics faster attenuating the pace focus on their arguments around the constant problems of inflation caused by the tariff, and the economy that holds, despite the signs that the labor market is slowing.
“Although we know about the extreme political pressure on the Fed, and we recognize the cracks that arise in some data on the labor market, from our perch … The point for the reduction looks modest,” – said in the note Lisa Shalet, Chief Investment CEO in Morgan Stanley. “And we can’t help but ask – which exactly does the Fed feel the need to solve?”
Despite the market prices, Morgan Stanley sees only 50% likely to reduce September. The firm also referred to uncertainty about inflation as well as Fed’s commitment to independence against the background The heat of President Donald Trump And the White House officials to reduce rates.
The Shalet also warned customers about investing too much faith in the Fed for the next leg in the stock, because “we question the impact of reducing rates anyway, given the reality that the lack of recession, the softening cycle may be shallow, while sensitivity to the interest rate of the greatest economic agents.”
Worried about the repetition of 2024
Indeed, there are constant questions about the influence of Fed levels in today’s climate.
At this time a year ago, the Central Bank entered the weakening mode, which eventually had unintentional consequences – the return step in the revenue of the Treasury and the mortgage rates that pushed the worries that the Fed could remove the foot too quickly, as well as expectations for higher economic growth.
This is a species that has a veteran of the Ed Jeder market, who is wondering about the wisdom of another round of cuts, as he is worried that Powell can make a mistake in the temporary impetus for inflation by Trump’s tariffs.
“The Fed don’t listen to me. Of course they will do what they are going to do,” Yardeni Research head said on Monday. “A cautious fairy tale is what happened last year when the Fed dropped to 100 basic points, and the bond yield increased by 100 basic points.”
If this happens, it will allow to disrupt the White House’s hopes for reducing the financial costs of government debt and the housing market increase by reducing the mortgage rate.
On the bright side, however, Yardeni believes that the stock on the stock market will get an increase from the rate of reducing the rate, and it maintains its bullish view of shares even in the face of potential political mistake. Yardeni believes that the S&P 500 can add another 2% from here to close the year about 6,600 and then rise 14% in 2026 to close 7500.
“I think we will have a continuation of the bull market, but I think it will lead to profit,” he said. “When the Fed goes forward and the lower rates on September 17, I think my goals can now be too conservative.”
