Bank of Canada Rate | Page 4 | General financial discussion | Discussion forum

Remember that the Fed is the supply of money, a commodity. The Fed is a business. It is not the government. The market prices in based on supply and demand. The market will determine its own direction, taking cues from all relevant sources.

Historically, the Fed rarely lets the rate be more than 25 pts from the 3-month bond rate, and more than 50 pts than the 6-month bond rate, at their announcement meetings. If the market moves much farther than that, the Fed is compelled to reduce that gap, as it otherwise negatively impacts their balance sheet.

The last time it was more, was during the 2007/08 crisis, and the Fed tried to make more conservative changes, but had to relent quickly because the markets were moving too far too fast (likewise in earlier periods).

Currently, the 3-month rate sits a hair above 5%; the 6-month rate just shy of 4.75%. There are still 11 more days until the next rate announcement and at the current trend, the market is highly likely to continue its move down, increasing the gap. As it stands, I would say there is at least a 75% chance of a 50pt drop, increasing probability if the trend continues, and if enough of a move down, a larger drop. That's my take on what I see.

Meanwhile, here are a couple of articles to consider:

What has the Fed done in election years? (JP Morgan)

Social mood governs the actions of investors and central banks (EWI)

Yup... and 80% of all statistics are just made up... 😉