Why the economic data supports a 50bp rate cut

While a rate cut is very likely to be made at the September FOMC meeting, its size remains anything but certain, with markets positioning for either a 25bp or 50bp rate cut.

In my view, the monetary policy backdrop and key economic data, support the case for a larger, 50bp reduction.

Here’s 3 key reasons why:

1) Inflation is no longer a major problem, with the disinflationary cycle now largely complete

With the M2 money supply remaining relatively constrained (see point 3 below), the disinflationary cycle has continued to strengthen, with adjusted core services prices (the most lagging component of the price cycle) now showing a clear disinflationary trend, with way above average price growth reverting to below average price growth on a 3-month moving average basis.

This has resulted in the core CPI ex-shelter recording a major reduction in growth, wi…