Source: Wall Street See
Currently, the market generally expects the Federal Reserve to begin an interest rate cut cycle at the Washington Federal Reserve meeting in mid-September, but analysts still have significant differences in the pace of rate cuts.
How many basis points will the Fed cut interest rates by?
On Thursday, September 5th, Oaktree Capital Co-Chair Howard Marks said at a conference in Melbourne that the "emergency situation" holding back inflation had ended, and the Fed is about to start cutting interest rates, but rates will not fall below 3%. He said:
"The Fed will cut back from the current emergency rates of 5.25% and 5.5% to around 3%. But my view is that we will maintain the level at 3% and will not return to the low points of 0.5% or 1%."
In March 2022, in response to rapid post-pandemic inflation, the Fed urgently raised interest rates by 25 basis points, followed by several larger hikes. Since the beginning of this year, the Fed's inflation containment measures have been effective, with the PCE returning to the 2% range. As US inflation steadily approaches the target of 2% this year, the risks in the labor market seem to be the only obstacle to the Fed's interest rate cut before it happens.
Currently, the market generally expects the Fed to start a rate cut cycle at the mid-September Federal Reserve meeting in Washington, but analysts still have significant differences in the speed of the rate cut. Some rate traders expect the Fed to aggressively cut rates by 50 basis points, while others predict a cut of 25 basis points.
On Wednesday, September 4th, the "Fed's favorite employment indicator" JOLTS job vacancies were at 7.673 million, dropping to their lowest level since early 2021, well below expectations. The market's expectation for a 50 basis point rate cut in September surged to 50%, while the likelihood of a 25 basis point cut dropped from 62% the previous day to 55%.
However, the employment index in the August ISM manufacturing sub-index rebounded significantly. Analysts believe this may indicate that Friday's non-farm employment report will be stronger than expected.
Various data roller coasters, concerns about the recession in the United States are growing, and the market has entered a "bad data is bad news" mode. According to a client report by Deustche Bank strategist:
"Given that the possibility of a recession announced by the US National Bureau of Economic Research in the next 3-4 months seems unlikely, looking at the data calmly, it is difficult to consider a rate cut of over 200 basis points as reasonable. Economic development is relatively slow, and only when the market rapidly declines is there a reason to expect a significant rate cut."
Editor / jayden