Welcome to the most anticipated Fed day in modern history. To mark the occasion, today’s edition features a special guest column from Jack Farley, one of the best macroeconomic minds in the financial press.

Scroll down for everything to know on the Fed’s imminent and uncertain policy adjustment.

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It’s not only about the size of rate cuts

Jack Farley is the host of Monetary Matters, a new macroeconomics show which debuts this afternoon. His previous interviews have seen over 30 million downloads across platforms. Tune in on Spotify and YouTube. 

How much will the Federal Reserve cut interest rates? 

That’s the big question today.

The answer will indeed move markets — it will mark the first policy cut in four years and uncertainty remains unusually high. 

As of Tuesday night, markets remain split on whether policymakers will slash rates by 50 or 25 basis points, with CME data showing 63% odds for a jumbo-sized move. 

Currently, rates are in the 5.25% to 5.50% range, the highest since 2001. 

Now, if you’re a trader, these probabilities may prove material to your balance sheet.

But for the rest of us, two other questions are worth noting: 

In my view, these two questions are more relevant than the size of the cut, and they will have a greater impact on markets in the coming months. 

The answer to the above lies in “the dots.” 

For context: Every other Fed meeting, policymakers publish their Summary of Economic Projections. This includes the FOMC Participants’ Assessments of Appropriately Monetary Policy — most people simply call them “the dots.” 

Central bankers use these dots to indicate how they think monetary policy will change in the months and years ahead.

These projections were last published in June of 2024, as show below.

The median indication for 2024 and 2025 was that rates would end those years at 5.1% and 4.1%, respectively.

We know those numbers are set to come down. 

And I anticipate markets’ bigger, more lasting reaction will be to the changes in the dots, rather than the size of this initial rate cut.

If the outlook for 2024 drops significantly, we’ll know that the Fed expects to be aggressive in the near-term.

If 2024 drops significantly but 2025 does not move as much, it tells us that the policymakers plan to be more aggressive in the near-term, but believe either of the following: 

To be clear, I will be tuning in to the Fed’s announcement today. 

But instead of watching commentators debate whether the rate cut was too big or too small, I’ll be focused on what the dots say and how markets absorb that updated outlook on the economy.

Thoughts or feedback? Respond to Jack directly on X @JackFarley96.

Elsewhere:

📈The S&P 500 has climbed 7 days in a row. The benchmark index just barely keep its winning streak alive Tuesday, the same day the Federal Open Market Committee kicked off its two-day meeting. Market-watchers will be tuning in to Powell’s speech after the Fed decision this afternoon. (Yahoo Finance)

🏘️ Trump wants to restore a homeowner tax break – and it’s actually the one that he scrapped during his first term as president. In a post on Truth Social, Trump said he wants to “get Salt back” and “lower your taxes” in reference to a long-standing practice where households could deduct state and local taxes from their federal tax bills. (FT)

📊 Retail sales data looked strong. Spending rose faster than expected in August as consumers proved once again their resilience in the face of worsening economic conditions. On the month, retail sales climbed 0.1%, while economists had expected a 0.2% decline. (Barron’s)

Rapid-fire:

Last thing:

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