The market is expectant. It is expected that the Federal Reserve (Fed) cut rates, although the question remains as to whether it will be by 25 or 50 points. JPMorganhowever, has already stated its position: it will be 50 basis points.
The US central bank is approaching this key meeting, in which it will carry out its first rate cut after an accumulated increase of 525 basis points in rates since March 2022, with a great deal of uncertainty and divided bets.
Experts say it is unusual for the Fed to face a meeting without it being considerably evident what decision he is going to make. He doesn’t like to give surprises, but if JPMorgan’s predictions come true, there will be one. Although it is true that there is a division in the bets, and approximately one 50% are in favor of a 25 bp cut and the other 50% are in favor of a 50 bp cutThe truth is that a more aggressive reduction would be surprising on many levels.
“I think if the Fed cuts rates by 50 basis points there is something they know that we don’t.”
What would happen if the Fed cut rates by 50 points?
Economists warn that This steeper cut would send a message of urgency and that things are worse than many think on the economic front in the US, something that would be negative for the markets. In short, there are many who do not see the need to do something like this and believe that it is better to go little by little.
JPMorgan He says that the market’s reaction to the rate cut will depend largely on the economic situation in the coming months, but also on the perception of the evolution of excess liquidity.
“During the Fed’s tightening over the past two years, bank reserves did not decline, and now that the Fed is beginning to ease, The liquidity outlook could, in fact, become more restrictive.. This could have an adverse effect on the risk assets“, the bank explains.
The Fed finally makes its debut with rate cuts: will it lower rates by 25 or 50 basis points?
In terms of economic growth, JPMorgan warns that if activity data are disappointing in the coming months, especially if labour markets weaken, then the performance of the The Fed has been lagging and rate cuts could be more “a confirmation of weakness, rather than an upward push.”
Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, explained that the option of a 50 basis point cut on Wednesday gained ground because some investors think, in fact, that the Fed should have cut rates in July and that it has fallen behind by not doing so. “Therefore, to make up for the delay, should implement a 50 basis point cut, otherwise the economic slowdown will gain momentum and push the economy into recession.”
“I think if this is the case, there is something the Fed knows that we don’t.”added the Swissquote Bank expert.
Source: Ambito
