Walking a mile in Fed Chair Powell’s shoes

“Before you judge a man, walk a mile in his shoes. After that, who cares? He’s a mile away and you’ve got his shoes!” — Billy Connolly

As of this writing, the market is now reasonably assured that the Federal Reserve (Fed) will start its rate-cutting cycle in September, even pricing 85% probability of a 50 basis points (bps) reduction. I am skeptical of such a large cut, with 25 bps being far more likely, and I expect investors to be disappointed by a perceived lack of responsiveness by the central bank. As I have noted previously , I believe the Fed should indeed be cutting aggressively, because the neutral rate for the economy (that which is neither accommodative nor restrictive) is not significantly higher than it was pre-pandemic. What the Fed should do versus what it will do, however, are two different things, with the latter affecting the market to a far greater extent.