Although most expect just a 25bp cut from the Fed on Wednesday, some are still in the 50bp camp.
Morgan Stanley, for instance, has 50bp (with the communication shifting to "continue to monitor") as their base case. That informs the bank's call for outright longs in 2-year Treasurys. The risk, the bank says, is a 25bp cut with a reversion to the "patient" language (that combination would constitute a hawkish surprise).
The Fed itself went to extraordinary lengths to walk back expectations for a 50bp cut just ahead of the blackout. John Williams's efforts to extoll the virtues of going big when operating near the lower bound were apparently seen as a misstep with the potential to push the market towards adopting 50bp as the base case ahead of the July meeting and so, the New York Fed issued an unprecedented "clarification". (Donald Trump loved Williams's remarks, by the way.)
Read more on the Williams communications faux pas: Fed Officials Succeed In Thoroughly Confusing Markets
"We suspect the FOMC was uncomfortable with the market moving toward a 50bp cut and wanted to push the market back to a 25bp baseline”, BofA wrote, following the July 18 debacle, on the way to saying t
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