There Is Now A ~100% Probability Of Another Federal Reserve Rate Cut This Week

Fed fund futures are now pricing a 99.8% probability that the Fed will deliver another 25bps rate cut on Wednesday.

This follows the jumbo 50bps cut on September 18th (U.S. 10-year yields have risen by 60bps since then).

Despite an incoming rate cut, the latest data last week showed the U.S. economy grew by an impressive 2.8% in Q3 — fueled by robust consumer and government spending.

Many have asked the question:

Why/how has the U.S. economy been so resilient, even with interest rates >5%?

What happened to the long and variable lags of monetary policy?

Apollo Global Management highlights three key factors:

1) The US economy has been less sensitive to interest rate increases because consumers and firms locked in low interest rates during the pandemic.

2) The US economy continues to experience a big structural boom in AI and data centres.

3) Fiscal policy is easy with a 6% budget deficit, driven by the CHIPS Act, the IRA, the Infrastructure Act, and defence spending.

While Europe, the U.K. and Japan struggle for growth, the U.S. keeps on firing.