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Joining us now to continue the conversation around the August CPI print. We've got Jennifer Lee, BMO capital markets senior economist and Eric Wallerstein, who is the Yardini research chief market strategist. Great to have you both here with us. I mean, I'm sitting here taking a look at the CME, um, this CME Fed watch probability here. And even though we're waiting for a little bit of an update here to perhaps factor in exactly what we saw come through CPI, it still looks like there's handedly this probability that leans more towards a 25 basis point cut. And Jennifer and your notes to us, you say that's the big question whether or not it's going to be 25 or 50. Does this report solidify that the Fed can feel comfortable with a 25 basis point cut?

First of all, good morning and thank you for having me on. And I would say totally solidifies a 25 basis points, uh, a cut. Um, I don't think we were ever really in the 50 basis point camp, even after last week's jobs reports. I, you know, I don't think that um, it wasn't so broad based week that it would, I think, uh, um, um, push for a, uh, uh, a 50 basis point cut. So I think this report, this would be the fifth, um, decent report in a row for the Fed giving them the comfort and the confidence to cut again, or to start cutting. And I think 25 basis points is a good place to start.

Eric, what do you think? Do you agree?

Yeah, um, I think 50 basis points also was not in the cards, uh, nor is that really a thing the Fed would do absent recessionary conditions or a financial crisis emerging. And for everyone who's asking for a 50 basis point cut, I think they should really reconsider, um, the amount of volatility that would cause in short-term funding markets. It's just not something the Fed wants to risk. And even the biggest doves have signaled, you know, it's a labor market that's cooling, we're going to go a quarter point and then go from there.

Eric, do you see a 50 basis point cut before the end of the year after the election?

Um, no. I think you'd again need a crisis or a recession, which we definitely don't foresee. Um, so I think if anything, and we'll see in the, uh, summary of economic projections, if anything, they go a quarter point at each meeting.

You know, Jennifer, as I'm taking a look through some of the indexes here within this CPI, of course, shelter is the one that catches the attention naturally. I mean, at this juncture, is there anything additional that you expect the Fed to be able to enact, the levers that they are able to pull in order to start attacking some of the biggest components that are contributing to this continued rise in the all items index, which is notably shelter right now.

Right. So I mean, there's only so much that monetary policy can do. It's a very blunt instrument as we know. Um, some of the other factors, you know, contributing to, I mean, it's basically like, you know, um, low inventories still, um, off the lows of course, but low inventories of housing available still. And there's, you know, that has been an issue for some time. You know, land availability, labor availability as well. So that's, you know, that's one of the sectors, by the way, that we're still seeing a shortage is on the construction side of things. And that's hampering, I think, uh, um, the how the ability to build. And that's also pushing, you know, rent prices or housing prices higher. Um, so that's something again that the Fed cannot do directly. Um, but overall, you know, just dampening demand at some point, um, um, you know, this is what, that's what's taking effect right now. This is what's causing the economic slowdown or what's contributing to the economic slowdown.

Eric, maybe to no surprise we are seeing futures under a bit of pressure here following the hotter than expected, uh, core reading on that month-over-month basis. When we talk about the odds may be increasing slightly here for the Fed then to go 25 basis points next week. What do you think the likely equity reaction is going to be?

Yeah, I mean, I think, um, 25 basis points will definitely depend on what the SEP and then, you know, what Powell says at the press conference. I think if they went 50, equity markets would fall and bond markets would rise. I think it would signal the economy is, uh, heading in the wrong direction. You know, we're behind the curve, and then it would, you know, kind of unleash the volatility that we saw with some of the carry trade unwind, um, as Japanese rates and US rates come closer together. So I think 25 basis points is probably priced in. Uh, it's always fun to say things are just always priced in. But um, I don't think that should, you know, wrangle the equity markets too much.