Economists expect a ‘sell-the-news’ event with speculated Fed 25 basis point rate cut

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John Hopkins University economist Steve Hanke discussed the upcoming Fed interest cut, which is expected by the Federal Open Market Committee meeting on September 17 and 18. Hanke said a 25 basis point interest rate cut might trigger a sell-the-news event.

Steve Hanke explained that the markets already anticipate a 25 basis point rate cut from the Feds. However, the actual cut and the news might underwhelm markets, especially for high-risk asset markets. Hanke anticipates the rate cut during the upcoming Federal Open Market Committee meeting on September 17 and 18.

The economist speculated that a possible 50 basis point rate cut could affect the markets differently. Steve explained that a 50 basis point cut could boost the markets. 

Hanke also mentioned the probability of increased volatility in high-risk assets, such as BTC, due to the upcoming U.S. presidential elections. The economist speculated that investors may settle for fixed-income assets, such as gold and Treasury bonds, to avoid the high-risk assets markets. 

A Reuters poll that ran between September 6 and 10 highlighted the anticipation around the Federal Open Market Committee meeting. The poll collected responses from 101 economists, and the results indicated that 92 economists believe the Fed could pass a 25 basis point rate cut in the meeting. 

Some economists anticipate a 50 basis point rate cut

Former New York Federal Reserve president Bill Dudley mentioned that the Fed could easily adopt a 50 basis point rate cut. During the September 13 Bretton Woods Commitee’s Future of Finance Forum in Singapore, Dudley said the cut should be considered, whether the Fed passes it or not.

“I think there’s a strong case for a 50 bps cut, whether they’re going to do it or not.”

–Bill Dudley, Former New York Federal Reserve President 

Bill also commented that the current U.S. interest rates were 150 to 200 basis points above the speculated neutral. The former NY Fed president had previously suggested the beginning of the rate cuts two months ago and is now asking the Fed, ‘Why don’t you just get started?’

The Fed fails to confirm 25 bps vs. 50 bps 

The Fed announced its plans to start cutting rates in next week’s meeting after the Labor Department’s employment report, published on September 6.

Economists suggested that the report did not warrant an aggressive approach from the Fed, saying that the 25 basis point rate cut would suffice for now. Many economists have also speculated that the Fed will reserve a more aggressive approach for this year’s last two meetings.

Stephen Stanley, Santander’s chief economist, explained that William and Christopher Waller both failed to clarify the Fed’s choice between 25 bps and 50 bps rate cut for the September 18 meeting. Stanley still said that the two economists offered a ‘benign’ assessment of the economy.

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