The possibility of a 50 basis point rate cut before the Fed's meeting next week has risen to 43%
Prior to the Federal Reserve meeting on September 17th to 18th, the futures market indicated a 43% chance of a 50 basis point rate cut. Supporters believe that this move can address the weakness in the labor market, while a 25 basis point adjustment aims to balance high unemployment rates with inflation. The Federal Reserve is expected to release its latest economic and interest rate forecasts at the meeting, hinting at more accommodative policies to address the deteriorating labor market
According to the Wise Finance APP, before the Federal Reserve meeting on September 17th to 18th, the debate over the magnitude of its first rate cut has intensified. Pricing in the futures market shows that the probability of a 50 basis point rate cut has risen to 43%, up from 25% a few days ago, but down from nearly 60% a week ago.
Supporters of a significant 50 basis point rate cut believe that this can give the Federal Reserve a head start in responding to further weakness in the labor market. A smaller 25 basis point adjustment indicates that officials are trying to strike a balance between a high unemployment rate and inflation still above the 2% target.
A larger rate cut would help monetary policy move away from tightening more quickly, but it could also signal the Federal Reserve's concerns about the health of the economy. Regardless of the size of the initial rate cut, the subsequent policy path will be more important than the scale of the initial action.
Federal Reserve officials will release the latest U.S. economic, inflation, and multi-year interest rate path forecasts on September 18th, providing updates in the Summary of Economic Projections (SEP). As early as June, different forecasts indicated that by the end of 2024, the federal funds rate could see zero, one, or two 25 basis point rate cuts. The median forecast of officials shows that by 2025 and 2026, there could be rate cuts of 100 basis points each year.
Currently, the interest rate futures market expects the greatest likelihood of a 100 basis point rate cut by the end of this year, and further cuts of 150 basis points in 2025. The September Summary of Economic Projections is expected to imply more easing than in June, mainly in response to the deterioration of the labor market. In June, officials' median forecast indicated that the unemployment rate would reach 4% by the end of this year. However, the unemployment rate reached 4.3% in July and slightly dropped to 4.2% in August