The general expectation is that the US Federal Reserve will reduce the bank rate for the first time since July 2023 when policymakers meet next Wednesday.
While nothing is guaranteed, lowering the rate seems logical, given the significant drop in inflation.
The exact extent of the Fed’s rate cut remains uncertain. While a modest 25-basis-point reduction seems most likely, a more significant 50-basis-point cut is still possible.
The stakes are high: cutting too aggressively could reignite inflation, while a smaller cut might push the US economy towards a recession. Recent softer jobs data has increased the chances of a larger cut, but hawkish voices within the Fed still pose uncertainty.
Market analyst Fawad Razaqzada from StoneX commented, “The slowing jobs market has prompted the Fed to reconsider its stance. Despite initial expectations that a 50-bps cut was unlikely after recent inflation data, the probability has rebounded to around 45%, leaving us with a nearly even chance of either a 25bps or 50bps cut next week.
As a result, the dollar has weakened broadly, and gold has reached a new all-time high.”
