By Investing.com — The Federal Reserve is tipped to slash interest rates by 25-basis points, rather than a more aggressive 50 basis points, following the conclusion of its latest two-day gathering this week, according to a survey of Investing.com readers.
Debate has been swirling around the size of the Fed’s first expected reduction in borrowing costs since March 2020, with analysts at ING saying the decision remains a “close call.”
Of the 6,018 respondents to Investing.com’s poll on social media platform X, 60.2% said they expect the Fed to announce a quarter-point cut, while 39.8% anticipate a deeper half-point reduction.
https://x.com/Investingcom/status/1835643024480641444
According to CME Group’s closely-monitored FedWatch Tool, the chances of a super-sized cut stand at 63%.
Bets that the Fed will roll out a jumbo drawdown have increased in recent days, fueled by reports in the Financial Times and Wall Street Journal that the move is still a possibility. Meanwhile, former New York Fed President Bill Dudley has said there is a “strong case” for a larger cut, arguing that borrowing costs are currently well above the so-called neutral rate which neither restricts nor accommodates economic activity.
In the final data point before the announcement, US retail sales unexpectedly rose in August, pointing to consumer resilience and broader economic strength. Such trends, along with mixed recent inflation figures and loosening labor demand, could further complicate matters for Fed officials.
Traders will also be hunting for any insight into how the Fed plans to approach a possible easing cycle, with markets currently pricing in at least 100-basis points in cuts by the end of 2024.
“[W]e strongly suspect the Fed will emphasise the uncertainty over the macro[economic] outlook and a willingness to be flexible,” the ING analysts said in a note to clients.
Fed Chair Jerome Powell said in August that the “time has come” to adjust monetary policy, citing possible “downside risks” facing the job market in particular. The outcome of a potential easing cycle could be one of Powell’s lasting legacies, especially as the Fed attempts to engineer a so-called “soft landing” — in which a period of restrictive policy cools inflation without sparking a meltdown in labor demand and the wider economy.