What’s going on here?
Traders are betting that the Federal Reserve will kick off a series of interest rate cuts with a significant half-percentage-point reduction on Wednesday.
What does this mean?
The Fed's two-day policy meeting starts today, and futures linked to the Fed policy rate suggest there's a two-in-three chance of a half-point cut, with a one-in-three chance of a smaller 25 basis-point cut. Until last week, most expected only a quarter-point cut, but reports from the Wall Street Journal and Financial Times have shifted predictions. Analysts believe these reports, likely guided by the Fed, signal a strong push for a bigger cut. The US retail sales uptick in August and a manufacturing rebound show the economy's resilience, supporting the case for a bolder move. However, some economists warn that such a significant cut could stir dissent within the Fed.
Why should I care?
For markets: Bracing for impact.
A half-point rate cut could send ripples through financial markets, impacting everything from bond yields to stock valuations. With inflation now at 2.5% – close to the Fed's 2% target – and unemployment slightly higher at 4.2%, this cut aims to strike a balance. Investors should watch how these adjustments affect various sectors, particularly those sensitive to interest rate changes, like real estate and tech.
The bigger picture: A strategic shift.
The Fed's move to potentially cut rates by half a point reflects its adaptability in addressing evolving economic conditions. This decision, if confirmed, could signal a more aggressive approach in monetary policy. With additional cuts likely through November and December, this strategy aims to bolster economic growth while navigating the delicate balance of maintaining inflation control.
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Originally Posted September 17, 2024 – Fed Expected To Slash Interest Rates By Half A Point This Week
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