Nick Timiraos: FED Rate Odds Equal Between 25 and 50 bps Cut

Today’s positive US Retail Sales and Industrial Production numbers have improved the situation for the USD, but the FED rate cut odds remain balanced. Nick Timiraos was out with a tweet earlier, saying that the odds between a 0.50% rate cut and a 0.25% cut are quite almost 50/50.

Nick Timiraos, a prominent Fed watcher from the Wall Street Journal, has tweeted insights regarding his recent Fed preview. It’s unclear if this reflects his personal view or if there’s some inside information from the Federal Reserve. Timiraos noted that the Fed faces a delicate decision between cutting rates by 25 or 50 basis points at their meeting starting today.

The argument for a 50 basis point cut centers on risk management and ensuring the Fed doesn’t fall behind the curve in addressing economic slowdowns. On the other hand, a 25 basis point cut would avoid the risk of reigniting inflationary pressures, which remains a concern. The Industrial Production for August also painted a brighter picture for the US economy today, besides the positive Retail Sales figures, however the odds of the FED rate cut haven’t changed much between 25 bps and 50 bps.

US Industrial Production for August

• US August industrial production: +0.8% versus +0.2% expected
  • Significant outperformance compared to market expectations, indicating a stronger rebound in industrial activity.
• Previous industrial production: Revised down to -0.9% from -0.6%
  • While July’s data was weaker than initially reported, August’s strength compensates for this.
• Capacity utilization: 78.0% versus 77.9% expected
  • A slight improvement in capacity utilization, signaling that industries are operating at a higher efficiency than anticipated.
• Prior capacity utilization: Revised down to 77.4% from 77.8%
  • Despite a downward revision, the latest reading shows improvement.
• Manufacturing output: +0.9% versus +0.3% expected
  • A robust increase in manufacturing output, suggesting stronger factory activity than forecasted.
• Prior manufacturing output: Revised down to -0.7% from -0.3%
  • Reflects weaker performance in July, though August’s gains help offset this decline.

While the recent negative revisions to August’s industrial production data slightly dull the overall outlook, the numbers remain robust. Some of this strength is attributed to a recovery from July, which was impacted by Hurricane Beryl. When averaged out, the data still presents a positive economic picture. In weather-related news, although we’re in the peak of hurricane season, the Atlantic remains surprisingly calm, providing some respite for now.