Economists warn: Violent rate cuts by the Federal Reserve will scare the market

An economist said that the Federal Reserve's larger-than-usual rate cut this month could scare the financial markets and send a wrong signal of an imminent economic recession.

The market generally expects the Fed policymakers to begin cutting rates at the September 17-18 meeting, with investors closely watching economic data for clues on the size of the rate cut.

George Lagarias, Chief Economist at Forvis Mazars, told CNBC on Thursday that while no one can guarantee the size of the rate cut at the upcoming meeting, he "firmly" stands in the camp calling for a 25 basis point cut.

Lagarias said, "I don't see the urgency for a 50 basis point cut."

"A 50 basis point cut could send the wrong message to the market and the economy. As we all know, an economic recession could be a self-fulfilling prophecy," he continued. "So, it would be very dangerous to do so without a specific reason. Unless something happens to unsettle the market, there is no need to panic."

Atlanta Fed President Bostic said on Wednesday that he is ready to support the Fed's rate cut. Before making the above remarks, a highly influential non-farm payroll report will be released by the government on Friday.

Strategists generally believe that the most likely outcome of the upcoming Fed meeting is a 25 basis point rate cut, although recent economic data seems to strengthen the case for more aggressive action.

Data released on Wednesday showed that U.S. job openings fell to their lowest level in three and a half years in July, seen as another sign of weakness in the labor market.

Market participants are firmly expecting the Fed to cut rates at this month's policy meeting, but after the job openings data was released, bets on a 50 basis point rate cut by the Fed increased.

According to the CME Group's FedWatch tool, traders currently estimate a 59% probability of a 25 basis point rate cut by the Fed in September, with a 41% probability of a 50 basis point cut.

"Still Far from Recession"

Lagarias told CNBC's "Squawk Box Europe" on Thursday, "There is no doubt that an economic slowdown is happening, but I think we are still far from a recession. I know the job market is weakening, some of it is due to an increase in supply rather than a decrease in demand."

He further explained, "Yes, job openings are weak, manufacturing is weak, but we expected this slowdown and it is within everyone's expectations, there is no evidence of an economic recession. At this point, I don't think the Fed will take very aggressive action."

Lagarias is not the only one warning the Fed not to cut rates by 50 basis points this month.

Mohit Kumar, Chief European Financial Economist at Jefferies, told CNBC on August 13 that the Fed has "absolutely no need" to cut rates by 50 basis points at the September meeting