Source: Caixin.
Author: Huang Junzhi.

Former New York Fed President William Dudley said on Friday that there is still a possibility of a 50 basis point rate cut at next week's Federal Reserve monetary policy meeting.

He said at the annual Future of Finance Forum of the Bretton Woods Committee in Singapore, "I think there is a strong case for a 50 basis point rate cut. I know what I'm fighting for."

Dudley served as the New York Fed Chairman for nine years. As the New York Fed Chairman also serves as the Vice Chairman of the Federal Open Market Committee (FOMC) and has a fixed voting right in monetary decisions. During his tenure working with Bernanke, Yellen, and Powell, Dudley has always been inclined towards a hawkish monetary policy.

In his latest remarks, he called for a 50 basis point rate cut by the Fed next week, citing a slowdown in the US labor market. He pointed out that the risks facing the US job market are greater than the ongoing challenges of inflation. He also emphasized Fed Chairman Powell's speech at Jackson Hole last month, where Powell stressed that he did not want to see further weakness in the job market.

It is worth mentioning that earlier this week, data released temporarily dispelled hopes of a 50 basis point rate cut in the market. However, after Goldman Sachs and Dudley called for a 50 basis point rate cut, the market became somewhat uncertain. CME's FedWatch Tool shows that the market currently predicts a 57% probability of a 25 basis point rate cut at the September meeting, and a 43% probability of a 50 basis point rate cut.

The latest data shows that although the year-on-year increase in CPI in August fell to 2.5%, a decrease of 0.4 percentage points from July, marking the fifth consecutive month of decline, the core CPI index, which excludes volatile food and energy prices, rose 0.3% month-on-month in August, the highest increase in four months and slightly higher than the market's median expectation of 0.3%.

Goldman Sachs CEO David Solomon said that due to a weak job market, the Federal Reserve may still choose a larger-than-expected interest rate cut. In an interview, he said that given the weaker labor market, there is a reason for the Fed to cut rates by 50 basis points, and "I think the possibility is slightly higher than 30%".

Dudley said that the current interest rates are 150-200 basis points higher than the so-called neutral interest rate of the U.S. economy, and the monetary policy of the U.S. economy is neither contractionary nor loose. "So the question is, 'Why don't you start taking action?'

"I think it makes sense for a rate cut of 50 basis points, whether they like it or not," he added.

In addition, Wall Street giants including Citigroup, JPMorgan, and Wells Fargo & Co are expected to take more aggressive actions. However, Dudley said, "It is very unusual to enter a meeting with this level of uncertainty, and the Fed usually does not like to surprise the market."

Editor/rice