According to a prominent economist, the possibility that the US Federal Reserve will cut interest rates by 25 basis points next Wednesday is already priced into the market, which could lead to a “news sell” event for risky assets.
“The market is already expecting a 25-basis point cut, which means the actual cut could be less than expected and trigger a sell-off news reaction. A 50-basis point cut, on the other hand, is not being factored in. If it were to happen, it would likely send the market higher,” Steve Hankey, an economist at Johns Hopkins University, told The Block.
Ahead of the September 18 FOMC meeting, the CME FedWatch tool indicates that rate traders are pricing in a 57% chance of a 25 basis point cut and a 43% chance of a 50 basis point cut. Notably, rate traders have significantly increased the odds of a 50 basis point cut, rising from 13% to 43% over the past 24 hours.
Hanke, who led the world’s best-performing fund in 1995, Toronto Trust Argentina in Buenos Aires.—Risky assets, including bitcoin, could see increased volatility in the coming months ahead of the U.S. presidential election on November 5, he added. Given the uncertain market conditions, he said he favors fixed-income investments such as 10-year Treasury bonds and gold..
21Shares Research Analyst Leena ElDeeb also observed that a 50 basis point Fed rate cut could be a market-moving event. However, ElDeeb added that investors may need to be cautious, as it could signal that the Fed is responding to recession warning signals. “A more aggressive rate cut could be a market shock as it could sound the alarm for a recession. Investors will likely trade cautiously based on weather market conditions that could hurt risk assets in the short term,” ElDeeb told The Block in an email.