US Fed rate cut: Policymakers, according to reports, expect the Fed’s benchmark to fall another half of a percentage point by 2024-end, and another one per cent in 2025
The large cut of 50 bps on Wednesday, they believe, seemed counterintuitive to the repeated claim that the economy was strong. The recalibration argument is clashing with the message this large cut sends.
Asian markets, meanwhile, reacted positively to the cut in interest rate by the US Fed with Nikkei 225, Hang Seng and the Shanghai Composite rising up to 2.5 per cent in trade on Thursday.
Back home, k.
A 50 bps cut without compelling data or forecasts, the Fed is taunting former and possibly next President Trump. This could have serious repercussions next year. The sole dissenter, Michelle Bowman, may just have improved her chance of becoming the next Fed Chair.
Looking ahead, if this was truly a recalibration and 50 has not become the new 25, we still expect 25 bps at each of the three upcoming scheduled meetings in November, December and January.
What happens after January will to a large extent depend on the economic policies of the next administration. A Trump victory would likely lead to a universal tariff and a rebound in inflation that should stop the Fed’s cutting cycle in its tracks. A Harris victory would likely be less inflationary and give scope for additional rate cuts in 2025.
