U.S Federal Reserve Rates cut-cycle - Starting small, the way to go

The rate cuts for most of the economies have been a trend for the last couple of months in many of the major economies across the globe. Earlier in September, we did see a rate cut announced by the European Central Bank by a quarter basis point.

From the purview of the Federal Reserve, the majority of the macroeconomic indicators seem to be doing well. If we look at the inflation numbers on the month-on-month rates it is said to be at 2.3 percent for August, and it’s said to be well within the ballpark of the Fed’s target. Considering, the core CPI numbers are rising, at 3.4 percent, when we factor in the economy's growth, in the last month. The inflation remains to be very sticky at best, and frankly, it was a good call from the Fed to wait to understand the trend of inflation.

What is more likely on the decision of the rate cut??

Most of the prominent bankers across the globe, feel the Federal Chief could go in for a smaller cut rather than a larger rate cut for September. The recent reports on the job market that came out, gave a mixed reaction from the majority of the bankers from across the board.

With the Fed showing more interest in terms of ensuring “ jobs “ in the economy, going in for a larger rate cut by 50 basis points seems to be a wrong move considering the sluggish economic growth and the employment data, that came out, for the last month.

Likely call by the Fed

The Fed is more likely to go for a smaller cut by 25 basis points this month (September) and probably go on for a couple more, depending on how the macroeconomic indicator performs until the end of the year. This trend is likely to continue till the election months and we could see another 50 basis points or more cuts depending on the economic fundamentals of the American economy.

The reports of the economy, suggest a growth in the cards, a slowdown, rather than a recession. This could have a cascading effect globally, with major changes in the stocks and financial markets. With the inflation treading towards the 2 percent goal, of the Fed chief, it is most likely to be achieved by least the latter half of 2025.