The Federal Reserve Keeping 50 Basis Point Rate Cut Option in Back Pocket, Analysts Say - Investing.com
In a note ahead of the Fed's Sept. 18 meeting, analysts at Capital Economics suggest that policymakers are likely to hold onto the 50 basis point rate cut option as the economic slowdown intensifies. While market bets on a 50 basis point rate cut at the upcoming FOMC meeting have slightly decreased, the possibility of larger cuts in subsequent meetings has increased, according to signals from Fed officials.
Fed Governor Christopher Waller expressed willingness to support larger rate cuts if the data indicates a need, citing his advocacy for front-loading rate hikes in the past. The recent weak U.S. economic data and market volatility have reignited discussions about the "Fed put," but analysts caution against expecting rapid and forceful responses from the Fed as seen in previous downturns.
Despite markets pricing in 125 basis points of cuts by the end of the year, analysts warn that a significant deterioration in economic data or financial stability would be necessary to justify the current pace of policy easing. The Fed had previously signaled one rate cut for this year at its July meeting, but updated economic projections will be released alongside the rate decision next week.
Analysis:
This article discusses the Federal Reserve's potential actions regarding interest rates in response to the economic slowdown. Analysts believe that while the Fed may keep the option of a 50 basis point rate cut, larger cuts could be on the horizon based on recent signals. The overall tone suggests caution in expecting aggressive responses from the Fed, despite market expectations for multiple rate cuts. Investors should monitor economic data and Fed announcements for potential impacts on financial markets and their portfolios.