US Fed Rate Cut Expectations: The US Federal Reserve is preparing to announce its first interest rate cut in over four years on Wednesday, as policymakers are set to debate the scale of the reduction, just under two months before the US presidential election.
The two-day meeting, set to conclude tomorrow (September 18), will feature US Fed chief Jerome Powell addressing the media during a critical press conference.
Anticipation is high regarding the potential rate cut. Investors and policymakers alike are focused on Powell’s address, with one key question looming: How much will the US Fed lower the key rates?
Experts are confident that the Fed chair will announce rate cuts, though the debate centres on the extent of the reduction.
Senior officials at the US central bank, including Fed chair Jerome Powell, have recently signalled that a rate cut is likely this month, as inflation moves closer to the bank’s long-term target of two percent and the labour market continues to cool, according to AFP.
The Fed, which operates under a dual mandate from Congress to ensure stable prices and maximum sustainable employment, has emphasised that its decision on rate cuts will be based entirely on economic data.
However, a cut on Wednesday could present challenges for Powell, as it comes just ahead of the election, where former Republican president Donald Trump faces current Democratic vice president Kamala Harris.
How big a cut?
The debate among policymakers is focused on whether to lower rates by 25 or 50 basis points.
Any rate cut would mark the Fed’s first since March 2020, when it slashed rates to near-zero to support the US economy during the Covid-19 pandemic.
The Fed began raising rates in 2022 in response to surging inflation, driven largely by post-pandemic supply chain issues and the war in Ukraine.
For the past 14 months, the Fed has held its key lending rate at a two-decade high of 5.25 to 5.50 percent, waiting for economic conditions to stabilise.
Now, with inflation easing, the labour market cooling, and the US economy still growing, policymakers feel the time is right for a rate cut.
They must now decide between a modest 25 basis point cut to provide relief or a more aggressive 50 basis point cut, which could benefit the labour market but also carry the risk of reigniting inflation.
Analysts view the smaller cut as the more cautious and prudent option.
“We expect the Fed to cut by 25bp (basis points),” economists at Bank of America wrote in a recent note to clients.
US Fed Rate Cut Impact On Indian Stock Market
Benchmark Sensex rose by nearly 91 points to close at a fresh lifetime high while Nifty settled above the 25,400 level for the first time supported by firm global trends ahead of the much-awaited US Fed’s decision on interest rates.
Extending its record-setting spree for the second day, the 30-share BSE Sensex climbed 90.88 points or 0.11 per cent to settle at a lifetime high of 83,079.66. During the day, it rose by 163.63 points or 0.19 per cent to 83,152.41.
The NSE Nifty gained 34.80 points or 0.14 per cent to settle at an all-time peak of 25,418.55.
In Asian markets, Hong Kong settled with gains while Tokyo ended lower. Markets in mainland China and South Korea were closed.
European markets were trading in positive territory. The US markets ended mostly higher on Monday.
“The Indian market exhibited a subtle positive momentum, driven by the anticipation of a rate cut cycle by the US FED. Although a 25-bps cut is largely factored in, the market remains attuned to the FED’s comments on the health of the economy and the future trajectory of rate cuts,” said Vinod Nair, Head of Research, Geojit Financial Services.
US Fed Meeting Date and Time
The two-day meeting will begin tonight (IST), with the FOMC gathering starting on September 17 and concluding on September 18. US Fed Chair Jerome Powell is scheduled to address the media around 11:30 pm (IST) on September 18, 2024.
The meeting will wrap up by 11:00 pm on Wednesday, followed by the press conference half an hour later.
This conference will be streamed live across all official US Fed channels. Powell’s guidance is expected to have a significant impact on global investors. Beyond the rate cut, his stance on inflation and unemployment will shape the mood of the global markets.
