The retail sales data released by the United States yesterday was higher than market expectations, showing that the U.S. economy is still in a stable situation. However, the major U.S. indexes did not change much on Tuesday (9/17). The Dow Jones and S&P 500 indexes closed near flat after hitting record highs during the session. Bitcoin once exceeded 61K. The market is paying close attention to Taiwan's Federal Reserve interest rate decision released at 2 a.m. on September 19, as well as Chairman Powell's press conference at 2:30.
Table of Contents
ToggleThe Federal Reserve is about to announce its interest rate decision
The Federal Reserve begins its two-day monetary policy meeting on Tuesday. The market expects the Fed to cut interest rates this time, but whether it will cut interest rates by one or two points will be the focus of the market. CME Fedwatch data shows traders see a 64% chance of a two-digit rate cut and a 36% chance of a one-digit rate cut. A week ago, most investors in the market expected only a one-point rate cut.
CNBC described this week’s Federal Open Market Committee (FOMC) meeting as being filled with a rare atmosphere of mystery. While the market consensus is that the Fed will cut interest rates, there is still fierce debate over how far policymakers will go. Fed observers believe this meeting will be more influential than in the past.
Mark Zandi, chief economist at Moody's Analytics, said:
I hope they cut interest rates by 50 basis points because current interest rates are too high. The Fed has achieved their mandate of full employment and inflation back on target, and I think they need to normalize rates quickly, and they have a lot of room to do that.
However, he doubts the Fed will cut interest rates by only 25 basis points. Many also expect the Fed's first steps to be more cautious.
Jefferies American economist Tom Simons believes:
Loose policies are uncertain. Therefore, if you are not sure, you should not rush.
Fed faces choice between inflation and recession
The FOMC has maintained the benchmark federal funds rate in a range of 5.25%-5.5% since raising interest rates in July 2023. That's the highest level in 23 years, and rates have remained there even as the Fed's preferred inflation gauge fell to 2.5% from 3.3% and the unemployment rate rose to 4.2% from 3.5%.
In recent weeks, Chairman Jerome Powell and other policymakers have made it clear that a rate cut will come at this meeting. The magnitude of the rate cut would require a trade-off between fighting inflation and keeping an eye on the sharp slowdown in the labor market over the past few months.
Seema Shah, chief global strategist at Principal Asset Management, said:
For the Fed, it comes down to deciding which risk is greater - if it cuts interest rates by 50 basis points, it will reignite inflationary pressures; if it cuts interest rates by only 25 basis points, it will face the threat of recession. The Fed has been criticized for being too slow to respond to the inflation crisis, so it may be cautious about reacting to the risk of recession rather than being proactive.
The statement and quarterly dot plot of this meeting will be released at 2 pm Eastern Time (2 am in Taiwan on 9/19), followed by Chairman Powell's press conference at 2:30.
