Federal Reserve Chairman Powell.
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The Federal Reserve has the ability to cut interest rates significantly by 50 basis points next week without alarming markets, as views on the central bank’s upcoming meeting remain sharply divided, one analyst said.
Michael Yoshikami, chief executive of Destination Wealth Management, said on Monday that a deeper rate cut would signal the central bank is ready to act but would not unleash deeper concerns about a broader recession.
“I wouldn’t be surprised if rates go all the way to 50 basis points,” Yoshikami told CNBC’s “Squawk Box Europe.”
“On the one hand, this is seen as a very positive sign that the Fed is taking the necessary steps to support employment growth,” he said. “I think the Fed is now ready to exit early.”
Nobel laureate Joseph Stiglitz made similar remarks on Friday. Stiglitz said the Fed should cut interest rates by half a percentage point at its next meeting, arguing that previous policy tightening was “too much.” Too fast.”
Policymakers are widely expected to lower interest rates at their meeting on September 17-18, but the extent of the cut remains unclear. Disappointing jobs data on Friday stoked concerns about a slowdown in the labor market and briefly shifted market expectations toward a bigger rate cut, but then restored expectations.
Traders currently see about a 75% chance of a 25 basis point rate cut in September, while 25% expect a 50 basis point rate cut in September. CME Group’s FedWatch Tool. One basis point is 0.01 percentage point.
Yoshigami acknowledged that deeper rate cuts could fuel concerns that a “recession ball” is coming, but insisted that view was exaggerated, noting that unemployment and interest rates remain at historically low levels and corporate earnings have been strong .
He said the recent market sell-off, which resulted in the S&P 500’s worst week since March 2023, was based on “huge profits” accumulated last month. Despite a volatile start to the month, all major stock indexes posted gains in August, while September is traditionally a weak trading period.
Thanos Papasavvas, founder and chief investment officer of ABP Invest, also acknowledged “increased concerns” about a potential economic recession.
The research firm recently revised the probability of a U.S. recession to a “relatively limited” 30% from a “moderate” 25% in June. However, Papasavas said the basic components of the economy – manufacturing and unemployment – “remain resilient.”
“We’re not particularly concerned that the U.S. is heading into recession,” Papasavas told CNBC on Monday.
Those views contrast with other market watchers, such as economist George Lagarias, who told CNBC last week that a sharp rate cut could be “very dangerous.”
“I don’t think a 50 basis point cut is urgent,” Forvis Mazars chief economist told CNBC’s “Squawk Box.”
“A 50 basis point cut could send the wrong message to markets and the economy. It could send a message of urgency and, you know, it could be a self-fulfilling prophecy,” Lagarias added.
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