[FOMC Preview] Is there a high possibility of a 50 basis point rate cut? What are the key points to watch for in the FOMC meeting?

The Federal Reserve Board (FRB) will hold the Federal Open Market Committee (FOMC) meeting on September 17th-18th.At 03:00 on Thursday of this week, Japan time.The FRB is scheduled to announce economic outlook, FOMC statement, policy interest rates, etc.Press conference scheduled for 03:30.It is scheduled to take place.

On August 23, Chairman Powell stated at the Jackson Hole Conference that "it is time for policy adjustments", and it is almost certain that a rate cut will be implemented at the September FOMC meeting.The focus is whether the rate cut will be 25 basis points or 50 basis points.It is.

According to CME's FedWatch, the Federal Reserve Board (FRB) is in the interest rate futures market on the 17th.67% believe that the rate cut amount will be 50 basis points.which is 33% higher than the 25 basis points.

25 basis points or 50 basis points?
The FRB normally cuts rates by 25 basis points. The market consensus is that if the authorities determine that there is a risk of a sharp economic slowdown, they may proactively cut rates by 50 basis points as a precautionary measure.

According to Fed watcher Nick Timiraos, starting with a 25 basis point rate cut is the easiest way to avoid panic caused by a significant rate cut or the need to explain a significant rate cut just before an election. He also pointed out that if the FRB is expected to cut rates by 1.00 percentage point this year, starting with a 25 basis point rate cut may raise strange questions about why it wasn't done in the first place, as there are only 3 more FOMC meetings left this year.

Renowned WSJ journalist Greg Ip believes that the current real short-term interest rate has reached 3.2% to 3.5%, and according to FRB officials, the "neutral" range of real interest rates is only between 0.5% and 1.5%. He also suggests that the FRB should cut rates in July.If the rate cut amount remains at 25 basis points, and if there are further weak economic data in the future, the FRB may deviate further from market expectations.As mentioned above.

Why is it important? - The current situation isBlackout period(A period during which high-ranking FRB officials refrain from making statements on monetary policy) According to Jim Reid of Deutsche Bank, if the expected 50bp rate cut is not satisfied, the FRB is likely to announce a 25bp rate cut through the media on Monday and Tuesday to clarify the rate cut.

Bill Dudley, the former president of the Federal Reserve Bank of New York, stated on the 13th that there are 'sufficient reasons' for a 50bp rate cut in the FOMC in September, emphasizing that the current interest rate of 5.25-5.5% is the highest in the past 23 years and has a negative impact on economic growth. Michael Feroli of JP Morgan also stated that the FRB should lower rates by 50bp to balance risks.FRB should lower rates by 50bp to address risk balance. uncomfortably close.

On the other hand, Goldman Sachs strategist Paolo Schiavone expects a 25bp rate cut. He said, "In the case of a 50bp rate cut, it means the Fed is more concerned about economic slowdown and needs a more substantial rate cut to promote economic growth." The current fiscal policy, monetary policy, and inflow of foreign capital can support economic growth and avoid the risk of recession." and commented.

What should we pay attention to at the FOMC?
●Dot chart
This dot chart indicates how much the interest rate is expected to drop by 2027. The dot chart shows the divergence of opinions among Fed officials. It suggests the possibility of implementing more aggressive policies in the future if there are many officials supporting additional rate cuts in November and December, especially those supporting substantial rate cuts by the end of the year.

According to the June dot chart, it was expected to have only one rate cut in 2024 and more rate cuts in 2025. AnalystsはIt is expected to show significant changes from the forecast in June.。

●Remarks by Chairman Powell.
If Chairman Powell suggests in his speech that the Fed is ready for further rate cuts or expresses concerns about economic risks, the market is likely to adjust its investment strategy accordingly. Additionally, how Chairman Powell "explains" the magnitude of the rate cuts may also affect market performance.

According to CME's FedWatch, the federal funds futures market on the 17th,According to CME's FedWatch, there is a more than 90% chance of implementing rate cuts of 100 basis points or more before the end of the year.。

How will the market move?
According to Nomura Securities, three months after the Fed cut rates by 50 basis points, the S&P500 stock index remained flat (though in 2007, 2001, and 1974, the S&P500 stock index experienced a significant crash). Small-cap stocks saw an average increase of 5.6%, technology stocks performed well, value stocks outperformed growth stocks, the dollar rose, metal prices surged, and the yield curve was bullish.