Standard Chartered has raised its expectations for a 50 basis point interest rate cut by the US Federal Reserve following disappointing August job data, more than doubling its earlier forecast of a 25-basis point reduction, reports Reuters.
According to data released on Friday, the US job market showed signs of significant weakness, with the unemployment rate climbing to 4.3 per cent, the highest level in almost four years.
This has strengthened the argument for a rate cut as the labor market shows clear signs of softening. Standard Chartered highlighted in a note that the labor market had gone from “solid to soft in just six weeks,” making a more substantial rate cut likely.
The bank now predicts that the Fed will make a 50 basis point cut at the upcoming Federal Open Market Committee (FOMC) meeting in September, similar to the action taken last year. However, it noted that after such a cut, the market might adjust to a slower pace of further reductions in subsequent meetings.
While Morgan Stanley and Deutsche Bank disagree with the 50-basis point view, suggesting that the job data isn’t severe enough to trigger such a cut, they acknowledged the possibility of additional cuts in upcoming meetings. Other institutions, like Barclays and Bank of America, have revised their forecasts to include 25-basis point cuts in future Fed meetings.
Market expectations, as shown by the CME FedWatch Tool, reflect a 90 per cent chance of a 25-basis point cut next week and a 10 per cent probability of a larger reduction.
