Yesterday, the released retail sales data in the United States exceeded market expectations, indicating that the U.S. economy remains robust. However, the major U.S. indices showed little change on Tuesday (9/17), with the Dow and S&P 500 indices closing near flat after hitting record highs intraday. Bitcoin briefly surpassed 61K. The market is closely watching the Federal Reserve’s interest rate decision, which will be announced at 2 am on September 19th in Taiwan, as well as the press conference held by Chairman Powell at 2:30.
The Federal Reserve is facing a choice between inflation and recession. The Federal Reserve began its two-day monetary policy meeting on Tuesday, and the market expects the Fed to cut interest rates during this meeting. However, the focus of the market is on whether the rate cut will be 25 basis points or 50 basis points. According to the CME Fedwatch data, traders predict a 64% chance of a 50 basis points rate cut and a 36% chance of a 25 basis points rate cut. A week ago, most investors in the market expected only a 25 basis points rate cut.
CNBC
Describing this week’s Federal Open Market Committee (FOMC) meeting as filled with rare mystery. Although the market unanimously believes that the Federal Reserve will cut interest rates, there is still fierce debate about the extent of the rate cut. Observers believe that the influence of this meeting will be greater than ever before.
Mark Zandi, Chief Economist at Moody’s Analytics, said:
“I hope they cut 50 basis points because the current rates are too high. The Federal Reserve has achieved its mission of full employment and inflation returning to its target. I believe they need to normalize rates quickly, and they have plenty of room to do so.”
However, he doubts that the Fed will only cut rates by 25 basis points. Many also expect the Fed’s first step to be more cautious.
Tom Simons, an economist at Jefferies, believes:
“Loose policies are uncertain. So, if you’re unsure, you shouldn’t rush.”
Since the rate hike in July 2023, the FOMC has kept the federal fund rate in the range of 5.25% to 5.5%. This is the highest level in 23 years, despite the Fed’s preferred inflation indicator dropping from 3.3% to 2.5% and the unemployment rate rising from 3.5% to 4.2%, the rates have remained at this level.
In recent weeks, Chairman Powell and other policymakers have explicitly stated that a rate cut will take place at this meeting. The magnitude of the rate cut needs to balance against combating inflation and monitoring the significant slowdown in the labor market over the past few months.
Seema Shah, Chief Global Strategist at Principal Global Investors, said:
“For the Federal Reserve, it ultimately comes down to deciding which risk is greater – if they cut rates by 50 basis points, it will reignite inflationary pressures; if they only cut rates by 25 basis points, they will face the threat of an economic recession. The Federal Reserve has previously been criticized for responding too slowly to the inflation crisis, so they may take a cautious approach to the passive response to the risk of an economic recession rather than taking proactive action.”
The meeting statement and quarterly dot plot will be released at 2 pm Eastern Time (2 am on September 19th in Taiwan), followed by Chairman Powell’s press conference at 2:30.
Federal Reserve
Rate cut
Powell