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"We don’t want to see 50bps because the market will then ask itself, ‘hang on a minute, why are they so scared?"

ended 16. September 2024

This morning, the greenback is under pressure and gold is at a new all-time high ahead of Wednesday's Fed rate decision, with a 0.25% cut baked in and the possibility of a deeper 0.5% cut.

One economist, Gabriel McKeown of Sad Rabbit Investments, has said “the era of ultra-low interest rates may not be over yet” while David Belle, founder and trader at Fink Money, warned: “We don’t want to see 50bps because the market will then ask itself, ‘hang on a minute, why are they so scared?”

Newspage asked experts how much they think the Fed will cut rates this week, whether it could mark the beginning of an extended rate-cutting cycle by central banks globally — and which asset classes and markets could benefit if the Fed cuts. Their views are below.

4 responses from the Newspage community

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David Belle
Founder and Trader at Fink Money
The Fed will cut 25bps this week. The market has continually overbought event volatility over the past few years going into Fed meetings. This time they have bought Secured Overnight Financing Rate (SOFR) heavily, leading to overblown odds for a 50bp cut (51% chance this morning). We should see SOFR sell off again, meaning 25bps gets nice and priced in. We don’t want to see 50bps because the market will then ask itself, ‘hang on a minute, why are they so scared? Why do they need to cut 50bps with SPX earnings this high and growth good?’
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Editor
Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
Investors riding the wave of gold's ascent and the dollar's retreat should prepare for potential whiplash if the Fed fails to deliver the rate cut bonanza the market craves. A 50bps cut would be a bold move, representing a significant pivot from the Fed, signalling their willingness to support the economy as recessionary fears circulate. Should the Fed embark on a rate-cutting cycle of that magnitude, growth equities and interest rate-sensitive sectors, such as real estate and utilities, could see significant upside. Additionally, emerging market currencies and bonds may rally as yield-seeking investors venture into riskier assets. However, as gold's siren song grows louder, the bullish sentiment is tempered by looming downside risks. These elevated levels could expose investors to corrections, especially if the Fed's anticipated rate cuts are less aggressive than expected. As we await the Fed's decision, one thing is clear: the era of ultra-low interest rates may not be over yet.
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Wes Wilkes
CEO at IronMarket Wealth
Whether the Fed cuts by 25 or 50 basis points has all of a sudden become the flip of a coin, with Fed fund futures showing a 50/50 chance as of close Friday with insiders stating it being a "close call". This is a stark contrast to the beginning of August when Powell himself said that the FOMC was not considering it. The huge risk here is that a 50 basis point cut has historically preceeded a recession, a message that the Fed is at pains to avoid and not something the market is currently pricing in. It's still clear that central banks are following their own data-dependent approach and although it may naively seem like there is some coordination in approach, the individual dynamics of their economies dictate that this is not the case. One worry to keep an eye on however is that the market may still be pricing in too many cuts to the end of 2024 from the Fed, with 75 basis points priced in meaning at last one of September or November would need to be 50 basis points.


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Platinum
John Choong
Head of Equities and Markets at Interpretiv
The retrenchment of the USD this morning is mainly down to the fact that the swaps market is pricing in a 50bps cut as the more likely possibility. While a 50bps cut is still entirely possible after the September meeting, we don't see such a large cut as our base case this week. Powell's tendency of not wanting to surprise markets and instigating panic is something to take note of, especially if the latest speeches from Fed members are anything to go by. However, if the Fed does decide to go on a vicious rate-cutting cycle and decides to start with a 50bps cut on Wednesday, this could bode well for stocks in the medium to long term. This would especially be the case if a recession can be avoided, as two of the last four rate-cutting cycles resulted in positive returns for US equities a year after the first rate cut, when a recession was avoided.