Historic Fed Decision: What You Need to Know
The US Federal Reserve (FED) will officially announce this evening that it is ending its policy of keeping interest rates high for 2.5 years. The institution is almost certain to cut rates by at least 25 basis points, the first rate cut in 4.5 years. The expected decisions regarding the Fed’s interest rates are currently in a state of great anticipation. For the first time since 2009, the markets appear indecisive about the Fed’s decision... Until last week, expectations were for a 25 basis point cut, but...
Until last Friday, markets were confident that the Fed would cut by 25 basis points. However, on Friday, the probability of a 50 basis point cut suddenly rose significantly. The probability of a 50 basis point cut is currently around 63% in the CME Fed Watch Tool, which tracks futures prices. This rate had fallen to 17% last week. There is no specific reason behind the increase in the probability of a 50 basis point cut.
“When there’s uncertainty, you have to be quick,” Tom Simons, an analyst at Jefferies in New York, said in his latest assessment. “You seem to be doing a tight monetary policy, but it’s not working the way the Fed wants it to. I think that’s going to be the case with QE. There’s uncertainty. When there’s a push, you usually have to be quick.”
Former Fed Member: 50 Points More Accurate
Robert Kaplan, former president of the Dallas Fed, also said in an interview that the Fed is lagging behind: “There are many people like me who think the Fed is late in coming and that it should be cut to keep the economy from collapsing. Of course, some will want the Fed to be cautious, but a 50 basis point cut would be a better outcome…”
Despite the decline in headline inflation, core inflation remains elevated. The Fed has held interest rates between 5.25% and 5.50% since July. This move by the Fed recently led to a rapid decline in inflation to 2.5%. However, core inflation remains above 3%, at 3.2%. Current interest rates are the highest the Fed has held in the past 23 years and have been held at this high level for a long time.
The "point drawing" will also be updated.
On the other hand, the Fed's "dot plot", which is issued 8 times a year in March, June, September and December, will also be updated for the first time since June at this meeting.
In their June “dot plot,” Fed members had forecast only one rate cut this year.
