Former New York Fed Chairman Dudley said there are "sufficient reasons" to cut interest rates by 50 basis points next week, and with the support of well-known financial journalists such as Nick Timiraos from the "Fed Communication Society", the market's bet on a rate cut by the Fed next week has risen to a 50-50 chance.
The latest data from Fedwatch shows that the probability of a substantial rate cut by the Fed this month has risen to 50% this morning, compared to only 15% on Thursday, according to traders in the swaps market.
The market's reaction was strong.
Previously, Friday's rate cut expectations had already surged, and this positive news prompted a strong rally in the US stock market, pushing the S&P 500 and Nasdaq Composite indexes to their largest weekly gains this year, rising 4% and 6% respectively. The Nasdaq index had just experienced a sharp decline the previous week.
Mark Dowding, Chief Investment Officer of RBC BlueBay Asset Management, also said that with the rate cut already "almost fully priced" on Thursday, it is now "highly probable" that the rate will be cut by 50 basis points.
Currently, the market still expects a 50% chance of a 25-basis-point rate cut, but this market expectation has significantly decreased compared to Thursday's expectations.
Former New York Fed President Bill Dudley said on Friday that he believes there are "sufficient reasons" to cut rates by 50 basis points next week, emphasizing the restrictive impact of the current interest rate level of 5.25% - 5.5% on economic growth, the highest level in 23 years.
In history, the Fed usually adjusts interest rates by 25 basis points, but if officials believe that the economy faces the risk of a rapid slowdown, a 50-basis-point rate cut may be used as a preventive measure.
Tim Duy, Chief U.S. Economist at SGH Macro Advisors, said:
"For the Fed, the least regrettable path is to cut rates by 50 basis points. This is the only logical policy choice."
Gabriele Foà, fund manager at Algebris Investments, also stated that the Fed would be "better off...cutting rates ahead of time" rather than risking "falling behind the curve" in a recession. Additionally, former New York Fed President William Dudley and economists such as Michael Feroli from J.P. Morgan also expressed that the Fed should further cut rates to avoid falling behind the curve:
"We believe that what the Fed should do next week is clear: cut the policy rate by 50 basis points to accommodate the evolving risk balance."
Uncertainty remains.
However, some analysts remain cautious. Goldman Sachs believes that while expectations of a 50 basis point rate cut are growing, the Fed is likely to cut rates by 25 basis points next week.
The Federal Reserve meeting on Wednesday is the last meeting before the November presidential election, where officials are trying to guide the USA to achieve "But after the bursting of the internet bubble and the Fed's rate cut in 2001, the ROI dropped by more than 10%.To suppress inflation without causing a recession.
It is worth noting that gold prices reached a historic high this week, while the 10-year U.S. Treasury yield hit a 15-month low. Both of these market trends can be seen as signals of economic deterioration. Some Fed officials also expressed concerns, stating that starting with a 50 basis point rate cut could easily cause market panic and would not be conducive to managing market expectations and controlling inflation.
In addition, the latest data shows that the overall inflation rate in the US has dropped to 2.5%, close to the Federal Reserve's target of 2%, but the core inflation rate has risen by 0.3% on a month-on-month basis due to factors such as housing market pressure. Wylie Tollette, Chief Investment Officer of Franklin Templeton Investment Solutions, commented on this.
If the inflation rate in housing and related areas continues to rise, a 50 basis point rate cut could accelerate or amplify this trend. I predict that the rate cut will be 25 basis points.
Salman Ahmed, Global Macro Chief at Fidelity International, believes that there is still a lot of uncertainty surrounding the rate cut. It's like a game of cat and mouse... We have already started the rate cut cycle, but there are still many unknowns.
Will the Federal Reserve cut interest rates as expected by the market in this meeting? What impact will it have on the stock market? Welcome mooer to make an appointment to watch the September FOMC interest rate meeting~
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