Scenario
|
Probability
|
Assessment
|
|
Uber Hawkish Cut (-25bp)
|
5%
|
- SEP dots are split between 2/3 cuts in 2025 (down from 4 in September) and 2026 is unchanged from 2025 @ 3.6-3.8%
- Long-run dot also moves clearly into the low 3% range
- Market Implication: major flattening and risk asset sell-off
|
|
Hawkish Cut (-25bp)
Base-Case
|
55%
|
- Statement/dots are hawkish and chair Powell suggests a
“wait & see” approach (implying the last of consecutive cuts)
- SEP dot estimates show 3 cuts in 2025 (down from 4) and 2026 only shows 1 cut (down from 2) with long-run dot @ 3%
- Market Implication: mild flattener, mixed risk asset reaction
|
|
Neutral Cut (-25bp)
|
35%
|
- Chair Powell presser sounds neutral, offsetting dot adjustment
- SEP dot estimates show 3 cuts in 2025 (down from 4 in September) but keeps the 2 cuts in 2026 like in September dots
- Market Implication: minor rates rally but via a bull steepener
|
|
Dovish Cut (-25bp)
|
5%
|
- Powell states that the higher unemployment rate is an issue and that inflation is still on track to 2% (esp. with lower OER)
- No major change to the annual or long-run SEP dot estimates
- Market Implication: front-end flies, large risk asset rally
|
