Paul McCulley on Fed Rate Cuts, September Cut in Play, and Fed Chair Candidates

Federal Reserve Meeting and Rate Cut Expectations

• 🎯 The Federal Reserve is expected to hold rates steady at its upcoming meeting.
• 🗓️ A September rate cut is anticipated by 65% of respondents in the CBC Fed survey.
• 📉 The chance of a recession has fallen to 31%, down from 38% in June and 53% in May.

Fed Chair Succession and Candidates

• 📊 The race to replace Fed Chair Jay Powell shows a three-way tie: Kevin Walsh (24%), Scott Besson (24%), and Hasset (22%).
• 🏛️ Fed Governor Chris Waller is highlighted as a strong candidate by Paul McCulley, who believes Waller is an incredible monetary policy scholar and practitioner.
• 🗣️ McCulley emphasizes Waller's extensive experience as a Fed governor, director of research, and educator in monetary policy and finance.

Yield Curve and Market Expectations

• 📈 Markets are watching to see if the Fed's actions will validate the current yield curve, which shows a steepening between the 2-year and 10-year rates.
• 💰 McCulley suggests that upcoming rate cuts will serve as a re-calibration to bring the policy rate down and re-slope the yield curve.
• ⚠️ He cautions against expecting massive declines in long rates, stating that one cannot achieve the same benefit twice.
• 📌 The focus for markets tomorrow will be whether September is in play for a rate cut, which McCulley believes the Fed will signal.