Senior market strategist pointed out that the Federal Reserve has no reason to cut interest rates by 50 basis points again. They stated that the latest US employment data suggests the Federal Reserve may be acting too hastily.

David Roche, founder and strategist of Kunten Strategy, described the Federal Reserve's decision to cut the key overnight borrowing rate by 50 basis points last month as a 'knee-jerk reaction.'

Announced last Friday.non-farm payroll dataThe data shows that in September, employers added 0.254 million job positions, far exceeding economists' forecast of 0.15 million. Meanwhile, the unemployment rate dropped to 4.1%, a decrease of 0.1 percentage point.

Roche stated that these data make the Federal Reserve's 'significant rate cut seem foolish and panicked.'

'The mistake lies in relying too much on data without a strategic vision,' he said last Friday, pointing out that unless something 'very bad' happens, such as the Middle East conflict escalating to the point of Israel bombing Iranian nuclear test sites, 'the Federal Reserve should not make significant rate cuts anymore.'

During an interview on Monday, Roche stated that the Federal Reserve's actions may do more harm than good, as they give a false impression of the US economy. He said:

'Firstly, it gives the impression that the US economy is more fragile than it actually is ... the economy is doing well and does not need significant rate cuts. Secondly, it creates the impression that the Federal Reserve will continue to cut rates, lowering them far below levels that will actually be achieved. Federal Reserve rates will not drop below 4% or 3.5% because the economy is very strong, and companies can earn enough funds without lower rates.'

Roche stated that the initial significant rate cut by the Federal Reserve created the impression that there would be more significant rate cuts of 50 basis points, which could lead to market instability when the market realizes this fact.

At that time, the Federal Reserve defended the significant rate cut by citing signs of slowing inflation and weakening labor market. After last week's nonfarm payroll data release, traders' expectations for a significant rate cut by the Federal Reserve in November had significantly decreased.

The CME Group's Federal Reserve Watch Tool shows an 87.4% chance that the Federal Reserve will cut the federal funds target range by 25 basis points to 4.5%-4.75%. The tool also indicates a 12.6% chance of rates being maintained at 4.75%-5%, with a 0% chance of a 50 basis point cut. However, a week ago, the probability of a significant rate cut was 34.7%.

Last month, the Federal Reserve decided to cut its federal funds rate by 50 basis points, marking the first time since the 2008 global financial crisis that the Federal Reserve took such action (apart from its emergency cuts during the COVID-19 pandemic). The Federal Reserve also indicated through its dot plot that it plans to cut rates by 50 basis points by the end of this year.

Senior advisor Bob Parker of the International Capital Markets Association agreed with Roche's view that the Federal Reserve's active rate cuts are fundamentally unwarranted.

He said, "We go back to two fundamental points. First, the likelihood of the U.S. economy entering a recession in at least the fourth quarter of this year and possibly the first quarter of next year is close to zero. Second, overall and core inflation rates will remain above the Federal Reserve's 2% target, so there is no reason for aggressive rate cuts."

Parker added, "Yes, it makes sense for the Federal Reserve to moderately cut rates, it makes sense to cut rates by 25 to 50 basis points by January next year, but there is no reason to cut rates by 50 basis points at the next meeting."

Last Friday, after the release of U.S. employment data, global markets rebounded, alleviating concerns about economic slowdown, although analysts warned that the upcoming U.S. presidential election and Middle East turmoil could maintain market volatility in the coming weeks.

GPS Capital Markets global strategy planning director Dave Pierce said that although there was a 'significant volatility' in the market last Friday, with the Dow Jones Industrial Average rising 300 points at that time, the recent revision of US non-farm payrolls data has been significantly downward. This should be a cautious signal, he said in an interview on Monday, "The data doesn't seem to be as accurate as expected, so, even though I think employment data is very important, significant, and will indeed affect the outcome of the next Fed meeting, the market now expects the likelihood of a 50 basis point rate cut by the Fed to be almost zero. We see some improvement in the economy, but we also see some signs of slowing down."

Pierce said that negative sentiments around the US economy still persist, mainly focused on inflation and its impact on Americans' daily lives. He said,

"The economy is doing well, no one says the US economy is bad, but there are still many people struggling, especially due to inflation and how much prices have risen in recent years. I believe it is these things that lead to potential market sentiments that the situation is not as good as expected. Because, although people have jobs and employment, they are still striving to maintain their daily lives."

Editor/Rocky