Synopsis:

MUFG analyzes the likelihood of the Federal Open Market Committee (FOMC) cutting rates by 25 to 50 basis points in its upcoming September 18 meeting. Key factors include economic data, particularly jobs reports, global commodity prices, and broader market conditions.

Key Points:

1. Data-Driven Expectations:

   • Economic Reports: Every piece of economic data is crucial in shaping expectations for the FOMC's decision on September 18. The upcoming JOLTS report and other economic indicators will play a significant role.
   • Current Market Pricing: The Overnight Index Swap (OIS) market currently prices in approximately 33 basis points of rate cuts.

2. Commodity Prices Influence:

   • Crude Oil Prices: NYMEX crude oil has fallen nearly 20% from its year-to-date high in April, reaching its lowest level since January. This decline could reduce inflationary concerns, potentially affecting FOMC members' decisions.

3. Global Market Conditions:

   • Risk-Off Sentiment: Ongoing risk-off movements in global markets and commodity markets may heighten the likelihood of a more substantial 50 basis point cut.

Conclusion: 

The FOMC's September 18 decision is highly contingent on forthcoming economic data and global market conditions. While the OIS market anticipates a modest 33 basis point cut, significant drops in commodity prices and global risk-off trends could increase the chances of a larger 50 basis point cut.