The Federal Reserve Bank of New York’s July 2024 survey of primary dealers determined that a number of America’s largest banks expected the chances of a 50-basis point cut in the fed funds target rate to be around five percent. Today, according to the CME FedWatch tool, the chances of a 50-basis point decrease is 67%. The survey also reported that traders expected a 94% chance that the fed funds target range would decrease once a peak of 5.26%-5.50% had been achieved. The fed funds rate target range is currently 5.25%-5.50%.
One reason to implement a 50 basis-point cut is to create a safety mechanism to mitigate harms from an economic downturn. David Volpe, chief investment officer at Emerald Asset Management, noted during an interview with Bloomberg Television, that a lot can happen between now and the November FOMC meeting. For this reason, the Fed should get in front of the potential for a downturn by increasing the fed funds rate.
Mike Green, chief strategist at Simplify Asset Management, observed during an interview with CNBC, that the Fed hiked interest rates too far, too soon. The Fed, according to Mr. Green, may not be feeling the urgency the average consumer is feeling. Wall Street trades on headline news but does not look under the hood of the economy to determine what the metrics actually mean.
Another reason for a potential 50-basis point increase stems from future expectations as to the economy’s performance. Liz Peek, in an appearance on Fox Business Channel, cited financial firm Ally Financials findings about increases in credit card delinquencies and the likelihood of more write-offs in the near future.
I have my doubts about rate cuts. Has cheap money resulted in an economy that manufactures or produces more goods? Will lower fed funds rates seep into the economy and drive-up asset values? Maybe, but will those increased asset values be used to leverage more consumer spending resulting in prices for goods and services being bid up? And if that is the case, how would these higher prices benefit labor?
Alton Drew
16 September 2024
Lawyers Write the Bets. Bankers Sell the Bets. 