Loading ...The US reports its first estimate of Q2 GDP on July 26.
The market impact may be minor and primarily limited to the headline effect. What the Fed decides to do at the July 30-31 meeting is not so much a function of Q2 GDP. It is not really based on the current data, and as the Fed’s Clarida explained, one needs to move before the data turns down. NY Fed’s Williams call for swift, preemptive action when necessary also helped depress the implied yield of the August fed funds futures to a new contract low below 2% before rebounding a bit ahead of the weekend and after the NY Fed suggested Williams comments were misinterpreted.
The market was eager to believe the Fed was going to cut 50 bp in one move that it seemed to willfully confuse the seeming assurances of the timing with the magnitude of the move. At one point, the fed funds futures market was pricing in around a 70% chance of a 50 bp cut. The pendulum of sentiment began swinging back, but it still finished the week better than a one-in-five chance of a 50 bp cut.