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what the CPI print is doing in terms of the broader market reaction that we just laid out for you. Inflation, we did mention this came in mostly in line with expectations. We did see a slight tick up on a monthly basis at the core level. Traders now pricing in an 85% chance though of a 25 basis point cut. Here with more is Scott Ren, senior Global markets strategist over at Wells Fargo Investment Institute. So, Scott, the probabilities according to the CME Fed watch tool have shifted and now handily looking at a 25 basis point cut. So what is this setup for September and the pathway beyond that?

Well, Brad, uh good morning and you know, we had been in the um certainly looking for 100 basis points in cuts in these three meetings. A month ago we would have said they would have done 50 here in September. Uh but I think the the the the Fed funds futures are right. The chances are is that it's going to be a 25 basis point cut. Um things like today's CPI data suggests that, you know, the Fed can go at at an even pace. And you know, the market's a little bit nervous when I looked yesterday at Fed funds futures, you know, there were there were 10 cuts are more than 10 cuts priced in between now and the end of 2025. I think that's too aggressive. I think the economy would really have to uh tank to see something like that. We're we're expecting a soft landing. We're not looking for recession. So, you know, the market's going to be very sensitive to this, but I think uh chances are that the Fed uh they lower 25 basis points in September.

Scott, there's been so much made about 25 versus 50 basis points. Does it matter?

I I you know, Sean, I don't think it does. You know, we we have, you know, we're catering to retail investors here and and you know, they are getting hung up on 25 or 50 basis points and I don't think that's really the important thing to focus on. I think the important thing is that the Federal Reserve is is just next week is going to begin a series of rate cuts. Um that's what we want our clients focusing on and and of course, you know, the financial media, uh there's news out there. There's time to be filled and the debate between 50 and 25 has has, you know, garnered a lot of air time. But in the whole scheme of things, we're going to have a lot of cuts here and I don't think that uh I don't think that investors should get too hung up on whether the first one's 50 or 25.

I feel slightly like a personal attack, but you know what, you made a lot of sense with it, Scott. So we'll let it slide here for today. You know, all these things considered though, I mean, if we were to see anything about and around 10 cuts, what does that put in your mind as a terminal rate that we should be looking out for once they begin the cutting cycle?

Well, you know, I you know, we debate this in the investment strategy committee all the time because everybody has their own idea on what they think the the neutral rate should be. You know, in my mind, you know, it should be, you know, 375 to 4, but some people think it's, you know, three percent or maybe even a touch lower. So, I think the Fed probably if you try to pin them down on on what the neutral rate or the terminal rate might be, you know, it would be, you know, somewhere between, you know, three and four percent. So, um, you know, that's in the ballpark. Um, you know, our theory is that they do want to get to neutral and that they're going to get there, you know, relatively slowly. So as I said, you know, we have 100 basis points penciled in for these last three meetings. Uh I think you can certainly safely say that we're going to see 75 and and once again, um, you know, don't get too hung up on on a quarter point here or there. Um, you know, we're going to see a series of cuts and that's going to positively affect um what is likely to be a slower economy here as we move into 2025.

Well, Scott, as we know everyone loves to weigh in on what the Fed should and shouldn't be doing and there certainly has been uh no shortage of critics out there saying that the Fed is behind the eight ball, that they've already done more damage than you can tell right now to the economy. When you take a look at the CPI print, at least the core print that we did get, does that really put that argument to rest?

Well, you know, I think the Fed didn't do a very good job when they left rates too low for too long. I think they've done a good job though. Uh you know, they raised rates, they raised it pretty quickly. Um you know, inflation is sticking around and you guys in your in your last segment talked about shelter and housing. Well, I mean, you know, that's a sticky component and that's going to be sticky next year uh as well. So I think, you know, it's tough to come up with new supplies of housing anytime quickly, but I I don't think the Fed is behind the eight ball. I think that, you know, we saw with headline CPI and we've seen with uh the uh personal consumption expenditures PCE. You know, inflation is moderating, it's moderating slowly. It's likely to do that at least into the first half of next year. Uh but certainly this housing shortage, it's not going to go away anytime soon and houses are going to be expensive and rents are going to be expensive.