Analyst Foresees 'Sell-the-News' Phenomenon Following Fed's Anticipated 25-Basis-Point Cut
As the U.S. Federal Reserve prepares for its upcoming Federal Open Market Committee (FOMC) meeting on September 18, markets are pricing in a 25-basis-point rate cut.
However, economists warn that this expected adjustment could lead to a "sell-the-news" phenomenon for risk assets.
Recent data from the CME FedWatch tool shows a 57% probability of a 25-basis-point cut, while the likelihood of a 50-basis-point reduction has surged from 13% to 43% in just 24 hours.
This shift suggests growing uncertainty about the Federal Reserve's direction amid economic signals.
Steve Hanke, an economist at Johns Hopkins University, indicated that the 25-basis-point cut is largely anticipated by investors. "A 25-basis-point cut is already factored into the market, which means the actual cut might underwhelm," Hanke said.
He noted that a more significant cut, such as 50 basis points, could provide a positive market response, as it has not been fully considered in current pricing.
Former New York Federal Reserve President Bill Dudley also expressed support for a 50-basis-point cut, arguing that current interest rates are 150-200 basis points above the neutral rate for the U.S. economy.
He questioned the rationale for delaying action, stating, "Why not just get started?"
Leena ElDeeb, a research analyst at 21Shares, commented that a 50-basis-point cut could be a significant market event, yet it might also raise concerns regarding recessionary trends. "A more aggressive rate cut could shock the markets, indicating the Fed's response to economic weakness," ElDeeb noted.
In the cryptocurrency market, Bitcoin was trading at approximately $58,121, reflecting a slight gain of 0.1% over the past 24 hours, while Ether remained stable at around $2,353.