原文标题： Rate Cut: Is the Fed About to Make a Grave Mistake?
Original author: Evans S.
Original source: https://www.cointribune.com/
Compiled by: Mars Finance, Daisy
Rate Cuts: Is the Fed About to Make a Big Mistake?
The Federal Reserve System (Fed) is in the spotlight as it prepares to begin a new round of interest rate cuts. The first cut, scheduled for September 18, seems inevitable, but it is the magnitude of the cut that has sparked investor interest and fueled speculation in the stock market. Is this a sign of a panicked Fed or a more prudent response to the current economic uncertainty? Here's how.
The Fed faces a delicate turning point
Since the Jackson Hole meeting in August, the Fed has clearly paved the way for a major shift in its monetary policy.
After raising interest rates by 500 basis points between March 2022 and July 2023 to tame runaway inflation, it looks like it’s time to ease up. But it’s not the decision itself that’s worrying stocks, but what it might mean.
In fact, the rate cut could be a response to two very different scenarios. On the one hand, the Fed could simply be responding to a natural economic slowdown. On the other hand, it could be motivated by concerns about an impending recession. This ambiguity worries the market, which is used to a cautious Fed, but this time, the Fed may be forced to make a more aggressive decision.
For example, a 50 basis point rate cut in September would be seen as an act of desperation, or even "panic mode," a move that has historically only been used in response to major crises, such as the coronavirus pandemic.
Stock market on thin ice
The atmosphere of uncertainty is particularly evident in the stock market. According to analysts, a rapid rate cut could have a direct impact on risky assets, especially stocks, which are a core pillar of U.S. household wealth.
If a 50 basis point rate cut is considered, it could lead to increased stock market volatility as investors would view it as a sign that the U.S. economy is in deep trouble.
Uncertainty also hangs over the labor market, which has become a new focus after inflation long dominated economic discussions.
The figures are unclear and difficult to interpret, especially due to the diversity of information sources and the impact of immigration on the labor market.
Some observers believe that the increase in labor supply could slow the pace of rate cuts because it makes the Fed less urgent to act aggressively.
However, critics are also emerging, saying that the Fed's actions are too late. According to them, the central bank is fighting a losing battle and the 50 basis point rate cut in September is just a remedial action rather than a real long-term strategy.
The Fed’s risky bet
Despite these uncertainties, there is no doubt that the September meeting will mark an important turning point for the Fed. A big rate cut risks undermining its credibility and being seen as an admission that it has failed to manage inflation and a slowing economy.
Conversely, a more modest rate cut could be interpreted as a cautious move aimed at easing tensions without sparking panic.
It is also important to note the political dimension of this decision. With the presidential election approaching, any radical action could provoke a negative reaction among stock markets and policymakers.
As a result, some experts have advocated for more modest rate cuts, spread out over several months, which would allow the Fed to retain some flexibility while signaling to markets confidence in its ability to navigate uncertain times.
All in all, the Fed is at a crossroads between caution and action. The next meeting on September 18 is expected to provide key indications on the health of the U.S. economy and the Fed’s ability to adapt to an increasingly uncertain economic environment.
Meanwhile, as investors hang on every word and every move, trying to decipher signals from a stressed central bank, Bitcoin’s dominance continues to strengthen.