Will The Fed Cut Rates on December 18th?
The Fed will do whatever the CME Watch tool says it will on December 18th.
At present, there is a 56% probability that the Fed will cut its Fed Funds rate by 25 BPS (below).
If the Fed decides to cut rates, it ought to further tighten on the QT side to rein in price inflation by way of reining in the money supply (M2, chart below), which has grown over the past year. It is impossible to reduce prices when the money supply is growing from an already elevated base. Recall that the Fed grew its Balance Sheet (chart below) from $4.2 Trillion in January 2020 to $9.0 Trillion in April 2022 and has only reduced its Balance Sheet by $2 Trillion since the peak.
Should the Fed cut rates, I would expect the 10YR Treasury yield to move above 4.5% (chart below). I believe that the fact that the 10YR yield has pulled back over the past few days is a mistake as the Trump Administration will continue to run large fiscal deficits.
