The #FED is set to officially end its 2.5-year policy of maintaining high interest rates this evening. A cut of at least 25 basis points is nearly guaranteed, marking the first rate reduction in 4.5 years. The Fed’s anticipated decisions are stirring significant market attention, as this is the first time since 2009 that uncertainty looms over the outcome.
Just last week, the consensus was a 25 basis point cut, but by Friday, expectations shifted dramatically. The likelihood of a 50 basis point cut surged to around 63% on the CME Fed Watch Tool, up from just 17% previously. The sudden rise in the 50 basis point cut prediction lacks a clear explanation.
Tom Simons, an analyst at Jefferies, noted, โWhen there is uncertainty, you have to act quickly. It appears the Fed is implementing a tight monetary policy, but itโs not yielding the desired results. I suspect a similar situation with quantitative easingโwhen payments are due, urgency often increases.โ
Robert Kaplan, former head of the Dallas Fed, added that the Fed is acting late. โMany believe a rate cut is necessary to prevent the economy from declining. While some advocate for caution, a 50 basis point cut seems more appropriate,โ he stated.
Despite a decline in headline inflation to 2.5%, core inflation remains elevated at 3.2%. The Fed has held interest rates between 5.25% and 5.50% since July, a strategy that has recently shown effectiveness but reflects the highest rates in 23 years.
Additionally, the Fed will update its “dot-plot” for the first time since June. In that earlier forecast, members predicted only one interest rate cut for the year, a projection that is now under scrutiny.
Stay tuned for the outcome of this crucial meeting
