With Federal Reserve Chairman Jerome Powell all but confirming that a rate cut is imminent, market attention on Friday quickly turned to when and how much a rate cut would be. Traders continue to expect that the Federal Reserve will launch an easing policy in September that is expected to last for a long time and cut interest rates by 25 percentage points, or 25 basis points. However, the likelihood of a more aggressive scenario, such as a half-percentage point move, is growing rapidly, with about a one-in-three chance of occurring, according to pricing in the 30-day federal funds futures market as measured by CME Group . Market participants believe this opportunity is particularly likely if the August jobs report, due out on September 6, once again proves that July data was weaker than expected. The next Fed meeting will begin in less than two weeks on September 17. Economist Paul McCully told CNBC’s “Squawk on the Street.” “But if we see weaker growth, especially weaker employment, then I think we can move forward a little bit earlier and start that process with a 50 basis point cut.” McCulley, former managing director of Pimco ) added: “I don’t think it’s the base case yet, but clearly he’s opening the door to early easing, just like he’s early tightening.” Powell spoke at the Fed’s annual symposium in Jackson Hole, Wyoming. The highly anticipated speech made it clear that a rate cut is possible. “Now is the time for policy adjustments,” the central bank chief said. Reasons for cutting interest rates by half a percentage point However, he was not so direct about the timing and pace of interest rate cuts, leaving the market to speculate on how much monetary policy Powell Federal Reserve is prepared to ease. However, some of the chairman’s statements seemed to indicate a preference for quicker action, especially if employment conditions continue to be weak. “We do not seek or welcome further cooling of labor market conditions,” Powell said. Given that inflation has weakened, there are some signs that a 50 basis point rate hike is at least possible, in addition to other vows to support the economy. The Fed’s benchmark borrowing rate, which influences most other rates consumers pay, currently targets a range of 5.25% to 5.5%. The market expects the Fed to lower the rate by one percentage point this year and at least by this percentage by 2025. “If you map out what you think is 25-25-25 in September, November and December, why not start at 50? You know you have to lower rates. If that turns out to be more Well, that’s great, why wait? The crux of Jobs’ report came in separate interviews with Atlanta regional president Raphael Bostic and Atlanta regional president Osten Gur on Friday. Austan Goolsbee did not commit to a specific easing strategy, although they said layoffs were imminent. “These numbers are starting to move in a direction that shows our policies are having an effect and we can start to move forward,” Bostic said. The path back to normal policy posture. “Look, we can’t wait until inflation reaches 2% before we start taking action.” Inflation has come down significantly, so that tells me we have to think hard about this. “Attention now turns to the August employment report due in two weeks. July employment data increased by only 114,000, and the unemployment rate rose to 4.3%. Such weak data is likely to prompt the Federal Reserve to approve a half-percentage point increase in interest rates. . On the contrary, signs of a strengthening labor market are unlikely to prevent the Fed from cutting interest rates, but Powell’s comments that “the way forward is clear” both indicate a rate cut and that “there is a chance of a rate cut.” A possible adjustment to the funds rate to 50 basis points would bring it closer to a level that remains restrictive relative to today’s economic and inflationary conditions. Reed, chief information officer of BlackRock’s global fixed income team, said in a report to clients. “We believe the Fed should lower the policy rate to a 4% funds rate more quickly because this would be more consistent with the current economy and Inflation conditions, which will require a 50 basis point cut over the next few meetings,” he added. “These data must open the door to current Fed thinking.”
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