Source: Jin10 Data

The sharp slowdown in the US job market has led to global stock market turmoil for several days, also sparking market speculation that the Fed may not wait until the next regular meeting in September to cut interest rates.

In fact, later this month, the interest rate futures contracts that track Fed policy expectations briefly rose to a two-month high this week, as investors bet on a rate cut before the end of August.

However, the chance of an emergency rate cut by the Fed is slim. As Chicago Fed President Charles Evans said earlier this week, "The Fed's mission does not involve the stock prices." The Fed's dual mandate is to promote full employment and price stability.

More and more analysts now predict that the Fed will cut interest rates by 50 basis points at its September meeting, but almost no one believes it will act early.

"The current economic data does not support an emergency rate cut between the two meetings of the Fed, which will only trigger a new round of panic in the market," wrote Nationwide Chief Economist Kathy Bostjancic.

Even former New York Fed Chairman Bill Dudley, who called for a rate cut in July last week, wrote this week that the likelihood of the Fed cutting rates between the two meetings is "very small."

At the Kansas City Fed's annual economic symposium in Jacksonhole, Wyoming at the end of August, Fed Chairman Powell is expected to have the opportunity to give new guidance on what he thinks may be necessary.

Currently, it is widely expected that Powell will ignore the stock market's plunge and reaffirm what he said at last week's rate decision press conference. He said, "If we get the data we hope for, we may consider lowering policy rates at the September meeting."

In the coming weeks, employment, inflation, consumer spending, and economic growth data may all affect the magnitude of the rate cut in September, whether it is 25 basis points or a larger cut.

In the past 30 years, there have been eight cases of the Fed cutting interest rates between meetings, and the turmoil in the market was far more than just stocks. It is worth noting that in all these cases, the bond market had obvious signs that the credit flow that kept the company running was rapidly interrupted. But so far, this factor clearly does not exist.

Analyzing the past cases of the Fed's emergency interest rate cuts shows the differences this time.

Russian financial crisis, the Fed emergency rate cut by 25 basis points.

October 15, 1998 - the Fed announced a rate cut of 25 basis points at the meeting two weeks ago, and then cut the policy rate by 25 basis points.

After the sovereign debt default by Russia two months earlier, the bankruptcy of hedge fund Long-Term Capital Management had repercussions in the US financial markets, expanding the credit spread that could affect investment and hamper the economy.

During the internet bubble, the Fed made a 100-basis-point emergency rate cut.

January 3 and April 18, 2001 - after the sharp rise and then sharp fall of internet technology stocks, the Fed unexpectedly cut interest rates 50 basis points twice early in the year over fears that this would affect household and corporate spending.

At that time, this event, which primarily occurred in the stock market, spread to the corporate bond market at the end of 2000, pushing the high-yield credit spread to a record high.

There have been 8 cases in the past 30 years where the Fed has cut interest rates between meetings, where there was more than just stock chaos. Notably, in all these cases, the bond markets showed obvious signs that the flow of credit that kept businesses running was rapidly breaking down. However, this factor is currently not apparent.

Following the 9/11 attacks, the Federal Reserve cut interest rates by 50 basis points in an emergency measure.

On September 17, 2001, after the terrorist attacks and the closure of the U.S. financial markets for several days, the Federal Reserve lowered its policy rate by 50 basis points and committed to providing exceptionally large amounts of liquidity to the financial markets until normal functioning resumed.

Before the Federal Reserve's actions helped calm the credit market, the high-yield credit spread widened by more than 200 basis points.

During the 2008 global financial crisis, the Federal Reserve urgently cut interest rates by 125 basis points.

On January 22 and October 8, 2008, the Federal Reserve lowered its policy rate by 75 basis points at an unscheduled meeting due to the worsening subprime mortgage crisis that started in the summer of the previous year and spread to global markets. At that time, the high-yield credit spread reached its highest level in five years.

The high-yield credit spread reached its highest level in five years at that time.

Then, on September 15, the bankruptcy of Lehman Brothers opened a new phase of the crisis. Although the Federal Reserve did not take policy action at the meeting a day later, it, along with other global central bank governors, took a coordinated action in early October, including lowering the federal funds rate by 50 basis points.

The credit spread ultimately peaked near the end of the year.

Amid the COVID-19 outbreak, the Federal Reserve urgently cut interest rates by 150 basis points.

On March 3 and March 15, 2020, the Federal Reserve cut rates by 50 basis points, followed by another 100 basis point cut less than two weeks later to ease policy. At the time, global tourism and commerce suddenly came to an almost complete halt due to government closures aimed at preventing the spread of the virus. Although U.S. stock indices fell by more than 30%, it was even more distressing that the credit spread widened by 700 basis points and the functioning of the U.S. Treasury market was disrupted.

The credit spread widened by 700 basis points and the functioning of the U.S. Treasury market was disrupted, despite the fact that U.S. stock indices fell by more than 30%, as the COVID-19 outbreak caused global tourism and commerce to come to a virtual standstill, prompting the Federal Reserve to cut interest rates by a total of 150 basis points in March 2020.

Editor / jayden