Will there be another rate cut this year?
After the Fed announced its decision to cut interest rates by 50 basis points, the most discussed issue in the market is when the next rate cut will be made.
The median of the Fed's dot plot shows that the Fed will cut interest rates by 100 basis points in 2024. After the 50 basis point cut in September, there is an expectation of another 50 basis point cut. The Fed is expected to cut interest rates by another 100 basis points in 2025, the same as the rate cut expected in the dot plot in June.
The trend of US interest rate futures suggests that the cumulative rate cut will be 76 basis points by the end of 2024 and 196 basis points by October 2025.
US Senator Elizabeth Warren criticized Powell (who has repeatedly criticized Powell for raising interest rates too quickly and being too lax with bank regulation): "This rate cut once again shows that Powell acted too late in lowering interest rates. The Fed has finally changed its policy direction and started to follow its dual mandate of prices and employment. Lower interest rates mean relief for consumers and aspiring homeowners. Further rate cuts are needed."
CME "Fed Watch" said that the probability of the Fed cutting 25 basis points by November is 62.2%, and the probability of a 50 basis point cut is 37.8%. The probability of a cumulative 50 basis point cut by December is 36.6%, the probability of a cumulative 75 basis point cut is 47.8%; the probability of a cumulative 100 basis point cut is 15.6%.
"New Bond King" Gundlach said that the long-term bond market does not want the Fed to adopt an aggressive easing policy; the Fed is not as behind the situation as before; after the US election, the Fed is more likely to cut interest rates by 50 basis points in November; current data supports Powell's remarks that the economy is not showing significant pressure.
Tom Hainlin, senior investment strategist at Bank of America, said that the Fed's rate cut is aimed at protecting employment, and two rate cuts are expected in the future. We have no particular view on whether the rate cut will be 25 basis points or 50 basis points. So we won't say that we will definitely be surprised. Looking ahead, at least from now to the end of the year, two more rate cuts should be expected. As inflation begins to get closer and closer to the target, it is not surprising that Powell focuses on the mission of employment, and he is worried about the potential downside risks in the labor market.
