Reaction on US Fed rate cut announcement by Anitha Rangan, Economist at Equirus
Below the Reaction on US Fed rate cut announcement by Anitha Rangan, Economist at Equirus
"While the debate on whether the move will be 25 or 50 bp has been answered, the move itself has left more questions than answers. The first being, if the economy is so strong (as Powell reiterated multiple times, why was there a need for 50 bp. May be to compensate for the cut they did not do in July. Nevertheless, Fed is also not in a rush (again as per Powell) – then why the rush for 50 bp?. So somewhere Fed is more worried about the labour market, more than persistent housing inflation or return of energy led inflation. Fed’s dot plot (SEP) says 50 bp more to come for this year (2 more policies left) and 100 bp in next year. Unemployment expected to go upto 4.4% while inflation expected to moderate closer to 2%. Growth largely unchanged ~2%. Clearly if unemployment concerns are on the rise, so is growth. That left the market puzzled with reactions opposite to expectations – Dollar strengthens, US equities decline, and US treasuries also rise post policy. However subsequently US equities have strengthened. So overall one can expect markets to remain volatile with central banks keeping the markets guessing on their move. On that note Bank of England and Bank of Japan kept policy rates unchanged (notably both had hiked earlier)."
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