Investing.com - Federal Reserve Expected to Cut Rates by 25 Basis Points, Survey Shows
The Federal Reserve is anticipated to reduce borrowing costs by 25 basis points, rather than a more aggressive 50 basis points, after its latest two-day meeting this week, as indicated by a survey of Investing.com readers.
There has been ongoing debate about the size of the Fed's first anticipated rate cut since March 2020, with ING analysts describing the decision as a "close call."
Out of 6,018 respondents on social media platform X, 60.2% predict a quarter-point cut, while 39.8% anticipate a half-point reduction.
CME Group's FedWatch Tool indicates a 63% probability of a larger rate cut. Speculation of a substantial reduction has grown in recent days, driven by reports from the Financial Times and Wall Street Journal. Former New York Fed President Bill Dudley has advocated for a larger cut, stating that current borrowing costs are above the neutral rate.
Ahead of the announcement, US retail sales unexpectedly increased in August, signaling consumer resilience and overall economic strength. These trends, combined with mixed inflation data and easing labor demand, may complicate matters for Fed officials.
Traders will be watching for clues on how the Fed plans to approach a potential easing cycle, with markets pricing in at least 100 basis points in cuts by the end of 2024.
According to ING analysts, the Fed is likely to highlight uncertainty in the economic outlook and a willingness to be adaptable.
Fed Chair Jerome Powell has indicated the need to adjust monetary policy, citing potential downside risks to the job market. The outcome of a potential easing cycle could have a lasting impact on Powell's legacy, as the Fed aims for a "soft landing."
Analysis:
The Federal Reserve is expected to announce a 25-basis point rate cut, rather than a larger 50-basis point cut. This decision could affect borrowing costs, consumer spending, and overall economic activity. Traders are closely monitoring the Fed's approach to a possible easing cycle, with markets anticipating further rate cuts in the coming years. The outcome of this decision could have long-term implications for the economy, job market, and inflation levels.