Those calling for a 50 bps rate cut next week should take a look back at January 2001 & September 2007 when the Fed started cutting cycles w/ a 50 bps move. If the Fed feels the need to go big because of a weakening economy, that's not bullish.
Video: https://t.co/n8CneskHDT pic.twitter.com/HYLTFJB1eD
— Charlie Bilello (@charliebilello) September 9, 2024
The U.S. Federal Reserve can make a big 50 basis points rate cut next week without scaring markets, says one analyst. Michael Yoshikami, CEO of Destination Wealth Management, said Monday that a deeper cut would show that the central bank is ready to take major action without pointing to bigger worries. Policymakers are widely expected to lower rates during their meeting on Sept.
17-18, but how much they will cut is still not clear.
Fun fact:
Next week the Fed will cut rates for the first time this cycle on September 18.
It was the same day, September 18, the Fed first cut rates in 2007.— Sven Henrich (@NorthmanTrader) September 10, 2024
Yoshikami suggested that a larger cut would show the Federal Reserve is ready to act boldly to support job growth and keep the economy stable. “I would not be surprised if they jumped all the way to 50 basis points,” Yoshikami said.
?? Ahead of U.S. open, odds of 50bps #Fed Cut – Bloomberg TV Chart pic.twitter.com/V5przub9Wb
— Christophe Barraud?? (@C_Barraud) September 9, 2024
“That would be considered a positive sign that the Fed is doing what is needed to support jobs growth.” He added that the Fed seems ready to proactively address potential economic slowdowns. Yoshikami’s comments come after Nobel Prize-winning economist Joseph Stiglitz pushed for a half-point interest rate cut at the Fed’s next meeting. Stiglitz argued the move is needed following previous policy tightening measures.
Good morning: We are updating our year-end rate call to 3.7% on the 10-year yield with risk of a move lower as growth, inflation and hiring cool.
Source: The Real Economy Blog https://t.co/3mCnLWk4Ae
— Joseph Brusuelas (@joebrusuelas) September 10, 2024
Market expectations have changed recently, with disappointing labor market data last Friday briefly tipping the scales towards a larger cut. Currently, traders are pricing in around a 75% chance of a 25 bps rate reduction in September, while 25% are considering a 50 bps cut.
Fed’s potential rate cut impact
A basis point is 0.01 percentage point. Yoshikami acknowledged that a larger cut could increase fears of a coming recession but insisted that such concerns were overblown. He noted that unemployment and interest rates remain low, and company earnings have been strong.
Thanos Papasavvas, founder and chief investment officer of ABP Invest, also recognized a rise in concern regarding economic downturns. However, he adjusted his firm’s probability of a U.S. recession to a “relatively contained” 30% from a previous “mild” 25%. Papasavvas emphasized that the economy’s core components, like manufacturing and unemployment rates, remain resilient.
“We’re not particularly concerned that we’re heading into a U.S. recession,” Papasavvas said Monday. Contrasting views continue to emerge, with some market watchers, such as economist George Lagarias, warning that a large rate cut could be risky. Lagarias cautioned that a 50 basis points cut might convey a sense of urgency that could lead to a self-fulfilling prophecy of economic instability.
“I don’t see the urgency for the 50 basis points cut,” Lagarias said. “It might send a wrong message to markets and the economy.”
