The Federal Reserve is about to make an interest rate decision next week on the Fed Funds Rate. The

Federal Reserve sets the Fed Funds rate and maintains a target between an upper and lower bound.

Since July $2022,$ this target rate has been $5\mathrm{.}25\%$ to $5\mathrm{.}5\%.$ The Fed is expected to start lowering rates in

the coming months at its meetings every $6$ weeks.

Consider the following:

Scenario $1$: the Fed lowers the Fed Funds rate by $0\mathrm{.}25(25$ basis points$)$ at each of the next four

meetings, the Fed funds rate would be as follows $($using the middle of their target range$)$:

Under steady $25$bp cuts

$5\mathrm{.}375$ for $2$ weeks $($until Sep meeting$)1$ week

$5\mathrm{.}125$ for $6$ weeks $($from Sep until end Oct$)6$ weeks

$4\mathrm{.}875$ for $6$ weeks $($end Oct until mid$-$Dec$)6$ weeks

$4\mathrm{.}625$ for $6$ weeks $($mid Dec to end Jan$)6$ weeks $($meeting not actually set for $2025)$

Using Unbiased Expectations Theory and the reported yield on a T$-$bill maturing at the end of Jan

$2024,$ explain whether the market "expects" a $25$ point or a $50-$point cut, given on September $11,$

the yield on a treasury maturing on $\frac{1}{31}\frac{?}{25}$ is $4\mathrm{.}78\%.$