20.5 C
New York
Wednesday, October 9, 2024

Fed Rate Hike: Will Wednesday’s Decision Usher In A New Era of Economic Uncertainty?

All copyrighted images used with permission of the respective Owners.

Write a high-quality, engaging, and informative news article Use Bold Wording Where Appropriate And Do Not Write Headings In Plain Text Write Them In HTML Bold any important concepts, terms, or data points that you want to highlight. Quotes If including quotes or key statements, bold the most impactful parts. Start Off With Writing A One paragraph intro for the news article that give reader a clear idea about the news then write key takeaways section in list for the news article that give clear idea to reader about news but also hook them up. Article Should Be At Least 1000 To 1200 Words Long. You can use multiple H2 tags to break up your content into sub-topics. The number of H3 tags depends on the depth of your content. Use H3 tags to break up content under each H2 tag if it exceeds 300 words. Write for humans first, optimizing for search engines second. Each Section Write a high-quality, engaging, and informative news article about “

Federal Reserve Chairman Jerome Powell takes a question from a reporter during a news conference following a Federal Open Market Committee meeting at the William McChesney Martin Jr. Federal Reserve Board Building on July 31, 2024 in Washington, DC. 

Andrew Harnik | Getty Images

For all the hype that goes into them, Federal Reserve meetings are usually pretty predictable affairs. Policymakers telegraph their intentions ahead of time, markets react, and everyone has at least a general idea of what’s going to happen.

Not this time.

This week’s gathering of the central bank’s Federal Open Market Committee carries an uncommon air of mystery. While markets have made up their collective mind that the Fed is going to lower interest rates, there’s a vigorous debate over how far policymakers will go.

Will it be the traditional quarter-percentage-point, or 25-basis-point, rate reduction, or will the Fed take an aggressive first step and go 50, or half a point?

Fed watchers are unsure, setting up the potential for an FOMC meeting that could be even more impactful than usual. The meeting wraps up Wednesday afternoon, with the release of the Fed’s rate decision coming at 2 p.m. ET.

“I hope they cut 50 basis points, but I suspect they’ll cut 25. My hope is 50, because I think rates are just too high,” said Mark Zandi, chief economist at Moody’s Analytics. “They have achieved their mandate for full employment and inflation back at target, and that’s not consistent with a five and a half percent-ish funds rate target. So I think they need to normalize rates quickly and have a lot of room to do so.”

Pricing in the derivatives market around what the Fed will do has been volatile.

Until late last week, traders had locked in on a 25-basis-point cut. Then on Friday, sentiment suddenly shifted, putting a half point on the table. As of Wednesday afternoon, fed funds futures traders were pricing in about a 63% chance of the bigger move, a comparatively low level of conviction against previous meetings. One basis point equals 0.01%.

Many on Wall Street continued to predict the Fed’s first step would be a more cautious one.

“The experience of tightening, although it seemed to work, didn’t work exactly how they thought it was going to, so easing should be viewed with just as much uncertainty,” said Tom Simons, U.S. economist at Jefferies. “Thus, if you’re uncertain, you shouldn’t rush.”

“They should move quickly here,” Zandi said, expressing the more dovish view. “Otherwise they run the risk of something breaking.”

The debate inside the FOMC meeting room should be interesting, and with an unusual division among officials who generally have voted in unison.

Former Dallas Fed President Robert Kaplan: I would be advocating for a 50 basis point rate cut

“My guess is they’re split,” former Dallas Fed President Robert Kaplan told CNBC on Tuesday. “There’ll be some around the table who feel as I do, that they’re a little bit late, and they’d like to get on their front foot and would prefer not to spend the fall chasing the economy. There’ll be others that, from a risk management point of view, just want to be more careful.”

Beyond the 25 vs. 50 debate, this will be an action-packed Fed meeting. Here’s a breakdown of what’s on tap:

The rate wait

The FOMC has been holding its benchmark fed funds rate in a range between 5.25%-5.5% since it last hiked in July 2023.

That’s the highest it’s been in 23 years and has held there despite the Fed’s preferred inflation measure falling from 3.3% to 2.5% and the unemployment rate rising from 3.5% to 4.2% during that time.

In recent weeks, Chair Jerome Powell and his fellow policymakers have left no doubt that a cut is coming at this meeting. Deciding by how much will involve a calculus between fighting inflation while staying mindful that the labor market has slowed considerably in the past several months.

“For the Fed, it comes down to deciding which is a more significant risk — reigniting inflation pressures if they cut by 50 bps, or threatening recession if they cut by just 25 bps,” Seema Shah, chief global strategist at Principal Asset Management, said in written commentary. “Having already been criticized for responding to the inflation crisis too slowly, the Fed will likely be wary of being reactive, rather than proactive, to the risk of recession.”

The ‘dot plot’

Economic projections

The statement and the Powell presser

Fed has 'nothing to lose' with 50 bp cut, says Wolfe Research's Stephanie Roth

Article Reference

Amanda Turner
Amanda Turner
Amanda Turner curates and reports on the day's top headlines, ensuring readers are always informed.

Subscribe

- Never miss a story with notifications

- Gain full access to our premium content

- Browse free from up to 5 devices at once

Latest stories

Rivian’s Production Hiccup: Will the EV Startup Recover in 2024?

Rivian's Production Cut Highlights EV Industry ChallengesRivian Automotive (RIVN), a prominent player in the electric vehicle (EV) market, recently announced a significant reduction in...

OpenAI’s Election Disruption: Is AI Now a Weapon for Cyberattacks?

OpenAI Report Reveals AI's Growing Role in Global Election InterferenceA new report from OpenAI, the creator of ChatGPT, reveals a disturbing trend: the increasing...

Google’s Breakup: Boon or Bane for Alphabet’s Stock?

Department of Justice Weighs Breakup of Google: Potential Implications for AlphabetDepartment of Justice Weighs Breakup of Google: Potential Implications for AlphabetThe Department of Justice...