Markets Brace for 25-Basis-Point Fed Rate Cut: What It Means for Risk Assets

Expert Insights: Potential 50-Basis-Point Fed Rate Cut and Its Market Implications

Fed Rate Cut – As the U.S. Federal Reserve’s next rate-setting meeting approaches, markets are already pricing in a 25-basis-point rate cut. According to prominent economist Steve Hanke, this expected adjustment could lead to a “sell-the-news” reaction for risk assets. Hanke suggests that while a 25-basis-point cut is anticipated and thus may not significantly impact the market, a larger, unexpected 50-basis-point cut could provide a boost.

CME FedWatch Tool Signals Rate Cut Probabilities

Ahead of the Federal Open Market Committee (FOMC) meeting on September 18, the CME FedWatch tool indicates that interest rate traders are pricing in a 57% probability of a 25-basis-point cut, and a 43% chance of a 50-basis-point reduction. Over the past 24 hours, the likelihood of a 50-basis-point cut has notably increased from 13% to 43%, reflecting a growing market expectation for a more aggressive rate adjustment.

Potential Impact on Risk Assets and Market Volatility

Hanke, who previously led the Toronto Trust Argentina—recognized as the world’s top-performing fund in 1995—warns that risk assets, including cryptocurrencies like bitcoin, might experience increased volatility leading up to the U.S. presidential election on November 5. Given the current market uncertainties, Hanke advocates for fixed-income investments, such as the 10-year U.S. Treasury bond and gold, as safer options.

21Shares Research Analyst’s View on Rate Cuts

Leena ElDeeb, a research analyst at 21Shares, notes that a 50-basis-point rate cut could significantly impact the market. However, she also points out that such a move might induce investor caution, potentially signaling a response to recessionary pressures. ElDeeb warns that an aggressive rate cut could shock the markets and lead to cautious trading, adversely affecting risk-on assets in the short term.

Former NY Fed Chief Supports Larger Cut

Former New York Federal Reserve President Bill Dudley has expressed support for a 50-basis-point interest rate cut. Speaking at the Bretton Woods Committee’s annual Future of Finance Forum in Singapore, Dudley argued that current interest rates are 150-200 basis points above the neutral rate for the U.S. economy, suggesting a larger cut could be warranted. He questioned, “Why not just get started?”

Current Market Conditions for Cryptocurrencies

As of the latest updates, Bitcoin (BTC) is trading around $58,121, reflecting a modest 0.1% increase over the past 24 hours. Similarly, Ethereum (ETH) has remained stable, trading at $2,353.

FAQ: Federal Reserve Rate Cut and Market Impact