The biggest suspense about the Fed's interest rate cut this week is whether it will be reduced by 25 basis points or 50 basis points. Jeffrey Gundlach, CEO of Double Line Capital and the "New Bond King," is on the "50 camp," betting that the Federal Reserve will initiate a 50 basis point rate cut cycle.
Gunlak believes that the Federal Reserve is too "lagging behind" and he is betting that the Fed is likely to lower the benchmark interest rate by 50 basis points on Wednesday, bringing the total to 125 basis points by the end of the year. He pointed out that the US economy has fallen into recession and the Federal Reserve has been maintaining a tightening policy for too long. The latest interest rate decision of the Federal Reserve will be announced at 2:00 am Beijing time on Thursday.
I think they will cut interest rates by 50 basis points - that seems too much, "he added." The Federal Reserve is far behind the situation, and they should take concerted action
Gunlak accused the Federal Reserve of cutting interest rates earlier.
We are already in a recession. I have seen a large number of layoff announcements, "he said.
This Federal Reserve meeting is very special. Generally speaking, on the eve of the Federal Reserve meeting, the market's bets are extremely clear, and such indecisiveness is rare. After the data released last week once dispelled the market's hope of a 50 basis point interest rate cut, now the market expects a greater hope of a 50 basis point interest rate cut (65%).
Jim Bianco from Bianco Research said on Tuesday, "Typically, on the day before a meeting, these probabilities are either 95% -100% or 0% -5%. Therefore, this level of uncertainty is unprecedented
On the other hand, according to the company's research data, among 118 Wall Street economists, 101 expect a 25 basis point rate cut, 13 expect a 50 basis point rate cut, and 4 have unchanged forecasts.
Bianco said, "I can't find another example like this. The day before the meeting, there was still such a big divergence between Wall Street and market pricing
However, the call for a 50 basis point interest rate cut on Wall Street is becoming increasingly louder. For example, Michael Feroli, Chief US Economist at JPMorgan, stated last week that the Federal Reserve should "lower policy rates by 50 basis points to adapt to the constantly changing risk balance.
In addition, former Federal Reserve "third in command" (former New York Fed chairman) William Dudley also stated last week that it is still possible to cut interest rates by 50 basis points at the September Fed meeting. He said, "I think there is a strong reason to cut interest rates by 50 basis points. I know what I want to fight for