Tonight, the Federal Reserve is about to implement its first interest rate cut in five years. However, the extent of the cut has become a huge suspense. Wall Street has been arguing over whether to cut by 50 basis points or 25 basis points, and market uncertainty has increased dramatically.
At 2 a.m. on September 19, the Federal Reserve will announce its September interest rate decision, followed by a speech by Fed Chairman Powell at 2:30 a.m. At present, the Fed's interest rate cut seems to be a foregone conclusion, but the specific extent is still difficult to determine. Recently, neither inflation data nor non-farm reports can determine the extent of the interest rate cut, and the market is wavering between a 50 basis point cut and a 25 basis point cut. During the period of silence of Federal Reserve officials, the media "leaked" 50 basis points, causing market expectations to lean towards this camp. Currently, the market is betting that the probability of a 50 basis point interest rate cut has jumped sharply to 60%.
There are different views on Wall Street. Some support a 50 basis point rate cut due to concerns about the labor market and the Fed "falling behind the curve"; others support a 25 basis point rate cut due to concerns about continued inflation and retaining options for subsequent rate cuts. But no matter which magnitude, the market will probably be shaken violently. Now the market is betting heavily on 50 basis points. If the Fed cuts interest rates by 25 basis points, the market will face huge losses; if the interest rate is cut by 50 basis points but subsequent actions lag behind market expectations, it may cause panic and lead to another tightening of financial conditions.
In addition to the extent of the interest rate cut, the Fed's "dot plot" and economic forecasts as well as Powell's speech have also attracted much attention. Recently released data are mixed. The CPI data show that inflation is still sticky, which increases the probability of a 25 basis point rate cut, while the PPI data cooled year-on-year, slightly increasing the possibility of a 50 basis point rate cut. Last Friday's "informed sources report" affected market sentiment, and Fed officials did not explicitly refute it.
Principal strategist Seema Shah said the Fed needs to decide whether a 50 basis point rate cut that triggers inflationary pressures or a 25 basis point rate cut that threatens a recession is a greater risk. The market is now betting heavily on 50 basis points, and if the Fed chooses a standard rate cut, the market will face staggering losses. If it chooses to cut interest rates by 50 basis points, economic forecasts and corporate earnings expectations will still be optimistic, which seems contradictory. Moreover, the pace of subsequent rate cuts may be slower than market expectations. If so, the financial conditions index may tighten again.
The "dot plot" is also crucial. This meeting will release the "dot plot" of interest rate trends in 2025, from which the market will seek clearer guidance on the pace and scope of future interest rate cuts by the Fed. In addition, the Fed will also release relevant forecasts for unemployment, GDP and inflation data. Goldman Sachs expects that the unemployment rate may increase and inflation expectations may be lowered. The FOMC's post-meeting statement will also be revised to reflect the expected interest rate cuts and other forward-looking guidance. Jefferies economist Thomas Simons believes that forward-looking guidance is of little use at this stage. How the Fed's "interest rate cut journey" will begin has attracted much attention.#美联储利率决议公布在即 