【FOMC Preview】Is there a high possibility of a 50 basis point rate cut? What are the key points to watch for at the FOMC?

The Federal Open Market Committee (FOMC) of the Federal Reserve Board (FRB) plans to hold a meeting on September 17-18.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 planned to be conducted.

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

According to CME's FedWatch, the Fed is expected to have a 67% chance of a 50bp rate cut in the interest rate futures market on the 17th.This view accounts for 67% of the market, significantly exceeding the 33% chance of a 25bp rate cut.Normally, the FRB lowers interest rates by 25bp. However, if the authorities determine that there is a risk of a sharp economic slowdown, it is believed that they may implement a preventive 50bp rate cut, which would be significantly higher than the 33% chance.

25 basis points or 50 basis points?
According to Nick Timiraos, a Fed watcher, starting with a 25bp rate cut is the easiest method and avoids the panic caused by a significant rate cut, as well as the problem of having to explain a significant rate cut right before the election. Additionally, if the FRB is expected to implement a 1.00 percentage point rate cut this year, starting with a 25bp rate cut raises the strange question of why they didn't do it in the first meeting, as there are only three more FOMC meetings for the rest of the year.

Greg Ip, a well-known WSJ journalist, believes that the current real short-term interest rate has reached 3.2% to 3.5%, and according to the FRB, the "neutral" range for the real interest rate is only between 0.5% and 1.5%. He also points out that the FRB should lower rates in July. If the rate cut is only 25bp, the FRB will deviate further from market expectations if there is more weak economic data in the future.

I also commented.

Why is it important? At the momentBlackout period(During the period when FRB officials refrain from making statements about monetary policy), according to Jim Reid of Deutsche Bank, if the expected 50bp rate cut is not met, there is a high possibility that the FRB will announce a 25bp rate cut through the media on Monday and Tuesday to make the rate cut clear.

Former President of the New York Fed, Bill Dudley, said on the 13th that there is "sufficient reason" for a 50bp rate cut at the FOMC meeting 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 thatThe FRB should cut rates by 50bp in order to address risk balance. uncomfortably close.

On the other hand, Goldman Sachs strategist Paolo Schiavone expects a 25bp rate cut. He mentioned, "In the case of a 50bp rate cut, it would mean that the FRB is more concerned about economic slowdown and would need to cut rates more significantly to stimulate economic growth.""Current fiscal policy, monetary policy, and inflow of foreign capital can support economic growth and avoid the risk of economic recession."said.

What to watch for at the FOMC?
●Dot Chart
This time's dot chart reveals the extent to which the FRB officials expect interest rates to fall by 2027. The dot chart illustrates the divergence of opinions among FRB officials. If there are many officials supporting additional rate cuts in November and December, especially those advocating substantial rate cuts by the end of the year, it implies a possibility of implementing more aggressive future policies.

In the June dot chart, it was forecasted that there would be only one rate cut in 2024 and more rate cuts in 2025. AnalystsIsI expect significant changes from the June forecast..

●Remarks by Chairman Powell.
If Chairman Powell suggests in his speech that the Fed is prepared to further cut interest rates and expresses concerns about economic risks, the market is likely to adjust its investment strategy accordingly. Additionally, how Chairman Powell 'explains' the extent of the rate cut could also potentially impact market performance.

According to CME's FedWatch, the Federal Reserve is facing a more than 90% probability of implementing a 100bps rate cut within the year.According to CME's FedWatch, there is a greater than 90% likelihood of implementing a rate cut of 100bps or more within the year..

How will the market move?
According to Nomura Securities, three months after the FRB cut interest rates by 50 bps, the S&P 500 index remained nearly flat (however, there were major crashes in the S&P 500 index in 2007, 2001, and 1974), small-cap stocks rose an average of 5.6%, technology stocks performed well, value stocks outperformed growth stocks, the dollar rose, metal prices soared, and the yield curve was bullish.