Stocks closed mostly higher yesterday with only the Nasdaq giving up a little ground.

All of the indexes saw big gains last week ahead of this week's widely expected interest rate cut by the Fed when they conclude their 2-day FOMC meeting on Wednesday.

While the odds have shifted to 63/37 in favor of a 50 basis point cut vs. a 25 basis point cut, it's still anybody's guess what the Fed does tomorrow afternoon. Regardless, the next debate will likely be about what happens next at the November meeting, December and beyond.

The Fed Funds rate is currently at 5.25%-5.50% (midpoint of 5.38%). Some are predicting a full percentage point cut in total by early next year (which means a 25 basis point cut in Sep, Nov, Dec, and Jan.), while others believe we could see a full percentage point cut by year's end, which means two 25 bps cuts and one 50 bps cut within the remaining three FOMC meetings this year.

Still others believe interest rates should fall all the way down to 3.5% before all is said and done, which would mean a cut of nearly two percentage points (188 bps) in total.

It all depends on what the Fed's terminal rate is – the rate the Fed wants to hit before they end their rate-cutting cycle. It's ironic that we are speculating on where and when the Fed will stop cutting rates, given they haven't even begun cutting them yet. But the market is forward looking. So naturally, the market will be attempting to price these future moves in before they actually happen.

The latest core inflation rate (ex-food & energy) for the Personal Consumption Expenditures (PCE) index, which is the Fed's preferred inflation gauge, was at 2.6%. If one were to assume that 100 basis points above inflation is the natural rate (aka the neutral rate), to allow growth, but keep inflation in check, then bringing rates down to 3.60% is where things should be, which is -178 basis points below current midpoint levels of 5.38%.

As inflation ticks higher or lower, the neutral rate can change. Either way, it shows the Fed has plenty of room to cut rates while also keeping monetary policy restrictive enough to bring down inflation while also fostering economic growth, i.e. the so-called soft landing the Fed is after, and so far, appears to be getting.

The FOMC Announcement comes out on Wednesday at 2:00 PM ET, followed by Mr. Powell's Press Conference at 2:30.

In other news, yesterday's Empire State Manufacturing Index rose to 11.5 from last month's -4.7 and views for -3.9.

Today we'll get Retail Sales, Industrial Production, Business Inventories, and the Housing Market Index.

We'll also hear from Lorie Logan, the President and CEO of the Federal Reserve Bank of Dallas.

But Wednesday's FOMC Announcement will be the main event this week.

In the meantime, the Dow hit new all-time highs yesterday. The S&P 500 is only 0.61% away from their all-time closing high from July. And the Nasdaq is 5.66% away from theirs.

See you tomorrow,