Some investment banks talked today about an interest rate cut in September, which has become a reality, especially after the release of inflation data yesterday and the jobs report for July.
Does the Fed reduce interest by 25 basis points or does it shock the markets and reduce interest by 50 basis points?
UBS says it sees no reason to cut interest rates by 50 basis points so far by the Federal Open Market Committee in September.
The inflation data was good enough to allow the Fed to start cutting interest rates in September, but this does not give them a reason to cut them sharply.
But the August non-farm payrolls report should be watched, the decision on cutting interest rates by 50 basis points instead of the usual 25 basis points may boil down to the August employment report.
Also, the retail sales data released on Thursday is one of the important releases, as UBS says that the main threat to the soft landing scenario is the decline in consumer spending.
JPMorgan, on the other hand, said that the Fed has the green light to cut interest rates by 50 basis points in September now.
As the Consumer Price Index is a green light for the Fed to start cutting interest rates at the next meeting in September, which will be on September 18 , 19, the Fed may cut 50 basis points or 25 basis points.
What should we watch for that may prompt the Federal Open Market Committee to cut interest rates by 50 basis points next meeting:
- The main factor will be the extent of the recovery in the August payroll report.
- If the job gains come within the range of 160-200 thousand, this could alleviate much of the concern raised by the employment reports in July and therefore a reduction of only 25 points is possible.
- If jobs are closer to last month's levels, the risk may shift towards growth, which may lead to a further interest rate cut and cause panic in the markets, thereby increasing expectations about an economic recession and making sure we do not have this soft landing.
