The odds are reportedly up 45% that the Fed will cut interest rates by 50 basis points next week. A 25 basis point Fed rate cut was the initial prediction due to last week’s job report and recent inflation data. However, a recent post from the Wall Street Journal predicts that the rate cut could perhaps be steeper.
According to the WSJ, odds are now nearly evenly split between a 25 and 50 basis point move next week. Wall Street Journal reporter Nick Timiraos published an article Thursday suggesting the decision on the rate cut is still up for debate. Timiraos is occasionally referred to as “Nikileaks” due to his previously successful sources inside the Federal Reserve. According to Timiraos, multiple sources close to the Fed have revealed that the true basis point cut isn’t decided on yet.
“I think [it] is a close call,” Jon Faust, a former senior advisor to Fed Chair Jerome Powell, told Timiraos. “You can make a very good case for 50,” added Esther George, the former president of the Kansas City Federal Reserve for more than a decade. Shortly following Timiraois’ article, the chances of the Fed slashing 50 basis points next week jumped 40% from initial predictions. At press time, the odds of a 50 basis point cut had risen a bit further to 45%.
How Will a 50-Point Fed Rate Cut Affect The US Economy and Markets?
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The Fed’s upcoming decision to cut interest rates will have a strong effect on the US markets and cryptocurrency. Following Nick Timiraos’ WSJ article, Bitcoin and other currencies rallied late on Thursday into Friday. A rate cut along with the further downfall of inflation is desperately needed in the United States’ current turbulent economy. The Fed previously hiked interest rates every month for just over a year following the COVID-19 pandemic, due to inflation struggles.
Now that all is on the mend, the focus shifts to the upcoming US election. Both Donald Trump and Vice President Kamala Harris have given contrasting thoughts on how to fix the economy. For the Fed, a 50-point interest rate drop sounds great. However, it could also be too steep too soon, sending the markets into further crisis. Therefore, the final decision will be crucial for the immediate future of the country. A steep cut could signal the worry of banks across the US, thus sending stocks and crypto even lower.
