Fed eyes first rate cut in 4 years

September 18, 2024 (MLN): Today, the Federal Reserve appears poised to reduce the US interest rate after 4 years. The market will be closely assessing the magnitude of the cut and the underlying message in the FOMC statement and press conference regarding its next policy action.

Market uncertainty persists over the size of the cut, particularly whether it will be 25 basis points or 50 bps reduction. Nevertheless, the statement should provide some clarity and direction.

Let us examine both scenarios. A 25 bps reduction would likely push the USD higher. As bond yields decline, the pressure on gold would increase significantly, and the DXY would gain.

Moreover, this might not generate enough enthusiasm in the US stock market, potentially leading to disappointment. Conversely, a 50 bps cut would likely have the opposite effect.

The crucial factor will be the Federal Reserve's guidance on its next potential action. The market will focus on forecasting the upcoming two FOMC meetings scheduled for November and December of this year.

The desired outcome is a clear commitment from the Federal Reserve Chairman, although this may prove challenging due to speculation about external pressure for a larger cut, assuming such speculation holds.

It is a widely observed phenomenon, yet I firmly believe that the Federal Reserve remains unaffected by external influences, given its status as an autonomous entity.

While I could be mistaken in my assessment, my prediction leans toward a hawkish surprise with a 25 bp reduction, which would draw significant attention.

Notably, FED watchers have increased the probability of a 50 bp interest rate cut to 60%.

The writer is the former Country Treasurer of Chase Manhattan Bank

Disclaimer: The views and analysis in this article are the opinions of the author and are for informational purposes only. It is not intended to be financial or investment advice and should not be the basis for making financial decisions.