The Fed's interest rate cut transaction adds another heavyweight signal.
On August 27th Eastern Time, the official website of the Federal Reserve released the latest minutes of its discount rate meeting, which showed that board members of the Chicago Fed and the New York Fed had voted in July to lower the discount rate by 25 basis points. This meeting minutes provide insight into the possible direction of the Federal Reserve's monetary policy. Currently, the market expects that the Fed will definitely cut interest rates in September, and even the possibility of a significant 50 basis point rate cut cannot be ruled out.
It is worth noting that the Federal Reserve has maintained interest rates at historically high levels for a long time, which has put enormous pressure on the US economy and is causing market concerns about an economic recession. UBS Global Wealth Management has raised the probability of a US economic recession from 20% to 25% to reflect weak job growth and concerns about a recession triggered by July unemployment data.
In addition, the latest survey results released by the Federal Reserve of Dallas, Richmond and Philadelphia also released a dangerous signal: Americans began to worry that the economic recession would hit the United States, and the relevant indicators of the economic outlook were declining, even falling into the shrinking range.
The Federal Reserve releases
On August 27th Eastern Time, the official website of the Federal Reserve released the latest minutes of its discount rate meeting, which showed that board members of the Chicago Fed and the New York Fed had voted in July to lower the discount rate by 25 basis points.
The Federal Reserve stated in a press release that although 10 out of 12 regional central banks voted last month to maintain the discount rate at 5.5%, the Chicago and New York Federal Reserve suggested lowering the discount rate to 5.25%.
For a long time, the minutes of the discount rate meeting have provided clues and signals about the future direction of the Federal Reserve's monetary policy.
It should be noted that the discount rate refers to the interest rate paid by commercial banks and other deposit taking institutions to obtain loans from their regional Federal Reserve Bank's loan arrangements (i.e. discount windows). Without the approval of the Federal Reserve Board in Washington, the board of directors of regional Federal Reserve banks cannot adjust the discount rate. This interest rate is usually set based on the Federal Reserve's target range for the federal funds rate.
The latest minutes of the discount rate meeting show that regional Federal Reserve directors generally believe that economic activity is stable, with many directors stating that inflation has eased, labor market conditions continue to balance, and wage growth in most regions tends to stabilize or slow down.
The minutes of the discount rate meeting also showed that as of last month, the Federal Reserve Board of Governors had not expressed any views on the level of discount rates.
At the Federal Open Market Committee meeting held at the end of July this year, the Federal Reserve kept its interest rate target range unchanged between 5.25% and 5.5%, and the discount rate also remained unchanged at 5.5%.
The minutes of the discount window meeting provide insights into the possible direction of monetary policy. With the easing of inflationary pressures and the rise of job market risks, the current market expectation is that the Federal Reserve will almost certainly lower its interest rate target at its September policy meeting.
According to data from the Chicago Mercantile Exchange's FedWatch tool, the probability of a 25 basis point rate cut in September is 65.5%, while the probability of a 50 basis point rate cut is 34.5%.
An analyst from BNP Paribas said, "We now expect a 25 basis point rate cut at every meeting this year. However, considering Powell's dovish attitude, the threshold for a 50 basis point measure is relatively low
Colin Finlayson, Co Manager of Aegon Strategic Bond Fund, stated that last week's speech by Federal Reserve Chairman Powell was very cautious and dovish, and did not rule out any possibility, but it did not help much in solving the dilemma of whether the Fed will cut interest rates by 25 basis points or 50 basis points in September. The door of the Federal Reserve is open, and based on current data, the Fed is more inclined to take a 25 basis point interest rate cut.
Dave Sekera, Chief Market Strategist at Morningstar, stated that the Federal Reserve will cut interest rates by 25 basis points in September. He believes that a 50 basis point interest rate cut is not only unlikely, but may even have a negative impact.
Sekera wrote in a report, "If they cut interest rates by 50 basis points, the market may interpret it as the Fed being more concerned about the economy than we expected. This could exacerbate market concerns about a recent economic recession
Danger Alert
The Federal Reserve has maintained interest rates at historically high levels for a long time, which has put enormous pressure on the US economy and raised concerns in the market about an economic recession.
On August 27th, UBS Global Wealth Management raised the probability of a US economic recession from 20% to 25% to reflect weak job growth and concerns about a recession triggered by July unemployment data.
UBS Global Wealth Management has pointed out in its latest assessment that the risk of a US economic recession has increased. At present, the basic expectation of an economic soft landing is maintained, but overall, the outlook is still shrouded in clouds.
In addition, the latest survey results released by the Federal Reserve of Dallas, Richmond and Philadelphia in the United States have released a dangerous signal: Americans are beginning to worry that the economic recession will hit the United States.
The Philadelphia Federal Reserve's business outlook survey, Richmond Federal Reserve's manufacturing outlook survey, and Dallas Federal Reserve's service outlook survey all show that the relevant indicators of economic outlook are declining, even falling into the contraction zone.
Meanwhile, the survey results indicate that actual capital in the United States is weak, with a significant decline in new orders and employment.
Overall, the expectations of respondents in the three regional Federal Reserve surveys regarding future business activities reflect a decrease in optimism among businesses in August.
Some respondents believe that the US economy cannot withstand the damage experienced since 2021, and that an economic recession will hit the US.
Another interviewed company said, "If spending continues to decline at the current rate until the end of this year, our business will begin to suffer significant negative impacts. We are very concerned that the Federal Reserve's interest rate cuts will not come soon, and when future interest rate cuts begin to affect the economy, consumer spending will be at a recessionary level
Meanwhile, the interviewees frequently mentioned the influence of political factors. Some companies have stated that considering the psychology of the public and the market as the main driving force of the economy, the upcoming election will determine the development direction of American businesses in the next four years.
Another interviewee believes that "the United States seems to be losing its dominant geopolitical position, and this vacuum is giving rise to war and violence, posing significant risks to international trade and reducing opportunities for American businesses. Anti business, tax, and spending rhetoric is not conducive to long-term investment and will further weaken the competitiveness of American businesses, especially compared to industries and companies supported by the Chinese government