The Federal Reserve meets soon to decide whether they'll cut rates by a quarter point or half a point. Markets are losing their minds over twenty-five basis points. That's a quarter of one percent. That's the difference between a 5.25% rate and a 5.00% rate on money you don't have.
Traders are watching producer and consumer price reports like they contain the meaning of life. They don't. The reports measure how much sh*t cost last month. The Fed will pretend this data matters to their decision. It won't. They already know what they're doing. They've known for weeks.
But sure. Let's all refresh Bloomberg every six seconds waiting for CPI to print at 2.6% instead of 2.7%. Let's pretend that one-tenth of one percent in an artificially smoothed government inflation metric will be the tipping point that forces Jerome Powell's hand. Let's act like the difference between 25 and 50 basis points will determine whether your Robinhood account finally goes green.
Some retail trader in Ohio has conviction trades riding on this. He read three Twitter threads about the Taylor Rule. He knows the neutral rate is somewhere between 2.5% and 3.5% depending on whose model you trust. He's certain the Fed will cut 50 because that's what the futures market implied last Tuesday. He's leveraged 3x on rate-sensitive small caps.
The Fed will cut rates by whatever they cut them by. The S&P will move 2% in one direction, then 2% in the other direction, then close exactly where it opened. CNBC will call it historic volatility. Portfolio managers will explain why they saw it coming either way.
The guy in Ohio will still be broke, just with a more sophisticated theory about why.
Photo by Markus Spiske on Unsplash
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