FOMC MEETING RATE CUT: ALL EYES ON FEDERAL RESERVE CHIEF POWELL TODAY

The Federal Open Market Committee (FOMC) of the US Federal Reserve will conclude its two-day meeting today. US Fed is likely to cut the rate by a quarter percentage points, however, talks of a 50bps rate cut are also doing the round.

The thing almost certain is that the US Fed rate cut exercise will begin soon. What is uncertain is by how much will Fed cut and at what speed will it bring the federal funds rate down from the current level of 5.25-5.5%. “Today, all eyes are on the FOMC, as market expectations remain delicately poised between a 25bp, or a 50bp, cut. What matters, though, is not the magnitude of today’s cut, but the speed at which rates return to a neutral level,” says Michael Brown Senior Research Strategist at Pepperstone.

The US Fed pivot day is here as the world’s largest central bank is set to cut rates for the first time in four years since March 2020. The Federal Reserve last raised the benchmark federal funds rate to 5.25-5.5% in July 2023, 14 months ago, and has maintained these rates since then.

The monetary policy decision of the FOMC meeting on September 17-18 will be announced by Fed Chair Jerome Powell at 2 pm ET, followed by Powell’s press conference at 2:30 p.m. Powell’s press conference today is critical for traders and investors because it will provide specific signals on policy direction and potential rate reduction if economic circumstances deteriorate.

Recent economic data shows inflation is no more on the Fed’s radar after the focus has been shifted to labor market. The US Fed may consider aggressive rate cuts if labor market conditions worsen significantly, potentially affecting the stock market and corporate earnings.

Economic weakness is not showing up, but that is not stopping the market from expecting the Fed to drop interest rates by 50 basis points. The logic is that if inflation fears are fading and job market concerns are rising, the Fed should get ahead of the problem and shift policy to neutral as soon as feasible.

Aggressive rate cut scenario may also boomerang. “I expect Chair Powell and the committee to commit to a tempered and gradual pace down the monetary policy stairs at the press conference and with the dots. Sure, there are risks of further labor market cooling, but I see the reignition of price pressures as a graver danger,” says José Torres, Senior Economist at Interactive Brokers

Voices are heard of a 0.5% rate cut which could come as a surprise for the markets. ” A 50-bps reduction would probably spook the market and generate a fierce bull-steepening across the yield curve, sparking uncertainty during an already tumultuous election season. Folks would wonder if the central bank knows something we don’t, especially since the authority analyzes confidential data related to the banking system,’ adds Torres.

Whatever decision the US Fed makes on rates and the path forward, the stock market may look very different in the next six months from what it is today.

2024-09-18T06:30:46Z dg43tfdfdgfd