Federal Reserve Chairman Powell.
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The Federal Reserve has the ability to cut interest rates significantly by 50 basis points next week without alarming markets, as views on the central bank’s upcoming meeting remain sharply divided, one analyst said.
Michael Yoshikami, chief executive of Destination Wealth Management, said on Monday that a deeper rate cut would signal that the central bank is ready to act but would not unleash deeper concerns about a broader economic recession.
“I wouldn’t be surprised if rates go all the way to 50 basis points,” Yoshikami told CNBC.European Squawk Box”.
“On the one hand, this is seen as a very positive sign that the Fed is taking the necessary steps to support employment growth,” he said. “I think the Fed is now ready to exit early.”
Nobel laureate Joseph Stiglitz made similar remarks on Friday, saying the Fed should cut interest rates by half a percentage point at its next meeting. “Too far, too fast” coupled with previous policy tightening.
policy makers are generally expected They will lower interest rates when they meet on September 17-18, but the extent of the cut remains unclear. disappointing Job printing Friday stoked concerns about a slowing labor market and briefly raised expectations for a deeper rate cut before reviving expectations.
Traders currently see about a 75% chance of a 25 basis point rate cut in September, while 25% expect a 50 basis point rate cut in September. CME Group’s FedWatch Tool. One basis point is 0.01 percentage point.
Yoshigami acknowledged that deeper rate cuts could fuel concerns that a “recession ball” is coming, but insisted that view was exaggerated, noting that unemployment and interest rates remain at historically low levels and corporate earnings have been strong .
He said the recent market sell-off caused the S&P 500 to fall Worst week since March 2023based on the “huge profits” accumulated last month. August witnessed everything Major stock indexes rise Despite a volatile start to the month, September is traditionally a weak trading period.
Thanos Papasavvas, founder and chief investment officer of ABP Invest, also acknowledged “increased concerns” about a potential economic recession.
The research firm recently revised the probability of a U.S. recession to a “relatively limited” 30% from a “moderate” 25% in June. However, Papasavas said the basic components of the economy – manufacturing and unemployment – “remain resilient.”
“We’re not particularly concerned that the U.S. is heading into recession,” Papasavas told CNBC on Monday.
These views contrast with those of other market observers, such as economist George Lagarias. told CNBC Last week, a sharp rate cut could be “very dangerous.”
“I don’t think a 50 basis point cut is urgent,” Forvis Mazars chief economist told CNBC’s “Squawk Box Europe.”
“A 50 basis point cut could send the wrong message to markets and the economy. It could send a message of urgency and, you know, it could be a self-fulfilling prophecy,” Lagarias added.
