Markets are confident that a rate cut is inevitable, not only Nabiullina is in doubt (but also Powell)

This week, all eyes will be on Washington, DC, where the Federal Committee will meet to discuss and vote on the course of monetary policy. After Jerome Powell's speech at Jackson Hole last month, where the Fed chairman signaled a possible policy change, many expect the Fed to announce the first rate cut since December 2024, and the only question that remains is how deep this reduction will be.

The Fed's leadership is currently facing a dilemma: weak labor market data coincide with steady upward inflation: the first requires lower rates, and the second requires caution. Earlier, Powell stated that in this case he would be reinsured, since he considers price stability a prerequisite for a favorable labor market situation. However, in his speech at Jackson Hole, he suggested that the current outlook "may require" an adjustment to the Fed's policy, which convinced the markets of an almost inevitable rate cut.

Subsequent economic data pointed to the same thing: a weak employment report for August and a weaker-than-expected producer price index (CPI), weak enough to dispel any doubts. According to CME's FedWatch tool, the markets have put a 95% chance of a 25—point decline in prices this week, and a 5% chance of an even sharper 50-point decline. However, given the report on the consumer price index last week, which showed an increase in inflation, such an outcome seems extremely unlikely at the moment.