The Federal Reserve is expected to announce its first interest rate cut in over four years on Wednesday after the Federal Open Market Committee (FOMC) meeting scheduled on September 17-18. The Fed Chair Jerome Powell will announced the outcome on Wednesday, September 18 around 11:30 PM Indian Standard Time (IST).
Earlier, top Fed officials including chair Jerome Powell have signaled that a rate cut is imminent, as inflation moves closer to the bank's long-term goal of two percent.
The debate among policymakers during their meetings on Tuesday and Wednesday will likely be whether to lower rates by 25 or 50 basis points. Experts believe that the smaller cut is the more prudent choice.
"We expect the Fed to cut by 25bp (basis points)," economists at Bank of America wrote in a recent note to clients. "The Fed likes predictability. It's good for markets, good for consumers, good for workers," said Modestino from Northeastern.
"So a 25 basis point cut now, followed up by another 25 basis point cut in November after the next round of economic data, offers a somewhat smoother glide path for the economy," Modestino added.
The Federal Reserve is anticipated to implement a series of interest rate reductions in the upcoming meetings, according to economists from various banks. While some, such as those at Goldman Sachs, predict a total cut of 75 basis points spread across the final three meetings of the year, others, like the economists at Citi, have a more aggressive outlook, with their base case involving 125 basis points of easing.
Traders also expect a probability exceeding 99 percent to the occurrence of at least four additional rate cuts in 2025. These cuts would result in the Fed's key lending rate falling to a range between 3.5 and 3.75 percent, representing a decrease of 175 basis points from the current levels.
This will be the Fed's first rate cut since March 2020, when it drastically reduced rates to near-zero to bolster the US economy during the Covid-19 pandemic.
The Fed began increasing rates in 2022 in response to a sharp increase in inflation, primarily caused by post-pandemic supply shortages and the conflict in Ukraine. Since then, it has maintained its key lending rate at a 20-year high of between 5.25 and 5.50 percent for the last 14 months, awaiting improvements in economic conditions.
Earlier, top Fed officials including chair Jerome Powell have signaled that a rate cut is imminent, as inflation moves closer to the bank's long-term goal of two percent.
The debate among policymakers during their meetings on Tuesday and Wednesday will likely be whether to lower rates by 25 or 50 basis points. Experts believe that the smaller cut is the more prudent choice.
"We expect the Fed to cut by 25bp (basis points)," economists at Bank of America wrote in a recent note to clients. "The Fed likes predictability. It's good for markets, good for consumers, good for workers," said Modestino from Northeastern.
"So a 25 basis point cut now, followed up by another 25 basis point cut in November after the next round of economic data, offers a somewhat smoother glide path for the economy," Modestino added.
The Federal Reserve is anticipated to implement a series of interest rate reductions in the upcoming meetings, according to economists from various banks. While some, such as those at Goldman Sachs, predict a total cut of 75 basis points spread across the final three meetings of the year, others, like the economists at Citi, have a more aggressive outlook, with their base case involving 125 basis points of easing.
Traders also expect a probability exceeding 99 percent to the occurrence of at least four additional rate cuts in 2025. These cuts would result in the Fed's key lending rate falling to a range between 3.5 and 3.75 percent, representing a decrease of 175 basis points from the current levels.
This will be the Fed's first rate cut since March 2020, when it drastically reduced rates to near-zero to bolster the US economy during the Covid-19 pandemic.
The Fed began increasing rates in 2022 in response to a sharp increase in inflation, primarily caused by post-pandemic supply shortages and the conflict in Ukraine. Since then, it has maintained its key lending rate at a 20-year high of between 5.25 and 5.50 percent for the last 14 months, awaiting improvements in economic conditions.
