BlockBeats reported that on September 26, both the Federal Reserve and Wall Street believed that the recent 50 basis point rate cut was just the beginning, but the two sides disagreed on how fast interest rates should fall. Fed policymakers insisted on continuing to lower interest rates in a slow and steady manner. At the same time, the market seemed to be betting that worsening economic conditions would force the Fed to move faster. The data will prove who is right.

With the big rate cuts completed in September and no recession in sight, the Fed doesn’t need to rush. The terminal rate for the cuts is the neutral rate, or the level of interest rates that neither stimulates nor constrains economic growth. The median forecast in the so-called “dot plot” in September indicated a 100 basis point rate cut this year and another 100 basis point cut by the end of 2025, bringing the target range to 3.25% to 3.5%. “While future actions will depend on the data we receive on inflation, employment, and economic activity, if conditions continue to evolve in their current direction, further rate cuts would be appropriate,” said Fed Governor Kugler.

Not all Fed officials believe that the fight against inflation is complete. Fed Governor Bowman mentioned the risk of a rebound in inflation in the coming months: “In my view, upside risks to inflation remain prominent, and global supply chains remain vulnerable to labor strikes and increased geopolitical tensions, which could lead to inflationary effects in food, energy, and other commodity markets. Expansionary fiscal spending could also pose inflationary risks, especially given the long-term limited supply and increased demand for affordable housing.”

The next FOMC meeting will be held on November 6-7, a few days after the US election. “While the overall picture of the data is always important, the incoming labor market data will need to provide greater confidence to confirm that the Fed’s slowing trend has stabilized,” Matthew Luzzetti, chief US economist at Deutsche Bank, wrote on Wednesday. So there are two dates to watch: October 4, when the September employment data will be released; November 1, the date of the October employment report, which is in the pre-FOMC quiet period. Luzzetti believes that if the unemployment rate exceeds the FOMC’s median forecast of 4.4% at the end of the year in the September dot plot, and non-farm employment growth remains at 100,000 per month or less, then another 50 basis point rate cut in November will be a topic of discussion. The market is betting on another 50 basis point rate cut in November, and Wednesday’s federal funds futures pricing shows that the probability of another 50 basis point rate cut on November 7 is about 60%. (Jinshi)

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