Kevin Dietsch | Getty Images A deeper interest rate cut from the Federal Reserve this month could spook financial markets and send the wrong message about an imminent risk of recession, according to one economist.
George Lagarias, chief economist at Forvis Mazars, told CNBC on Thursday that while no one can guarantee the scale of the Fed’s rate cut at its forthcoming meeting, he is “firmly” in the camp calling for a quarter-point reduction.
“I don’t see the urgency for the 50 [basis point] cut,” Lagarias said.
“The 50 [basis point] cut might send a wrong message to markets and the economy.
How big will the Fed rate cut be?
watch now Strategists have typically said the most likely outcome from the Fed’s forthcoming meeting is a 25-basis point rate cut, although recent economic data appears to have strengthened the case for a bigger move.
Traders are currently pricing in a roughly 59% chance of a 25-basis-point rate cut in September, with 41% pricing in a 50-basis-point rate cut, according to the CME Group’s FedWatch Tool.
There is just no evidence for a recession and, to that point, I don’t think the Fed is going to move very aggressively.”
Lagarias is not alone in cautioning the Fed against a half-point reduction this month.
Mohit Kumar, chief financial economist for Europe at Jefferies, told CNBC on Aug. 13 that there is “absolutely no need” for the Fed to cut by 50 basis points at the September meeting.
Kevin Dietsch is on Getty Images.
One economist believes that a more significant interest rate reduction from the Federal Reserve this month might frighten financial markets and convey the incorrect idea about the imminence of a recession.
It occurs while decision-makers at the U. S. At their meeting on September, central banks are generally expected to begin cutting interest rates. 17–18, and investors are keeping a close eye on economic data to get a sense of how significant a rate cut they might implement.
Forvis Mazars’ chief economist, George Lagarias, stated to CNBC on Thursday that he is “firmly” in favor of a quarter-point reduction in interest rates, even though no one can predict the exact amount to be lowered at the Fed’s upcoming meeting.
Lagarias remarked, “I don’t see the urgency for the 50 [basis point] cut.”.
“Markets and the economy might receive the wrong message from the 50 [basis point] cut. “You know, that could be a self-fulfilling prophecy, and it might send a message of urgency,” he went on.
“So, it would be very dangerous if they went there without a specific reason. There’s no cause for alarm unless there’s an occurrence, something that disturbs markets. “. .
How much of a rate cut will the Fed make?
The majority of other rates that consumers pay are influenced by the Federal Reserve’s benchmark borrowing rate, which is currently set between 5 percent and 5 percent.
President of the Atlanta Federal Reserve Raphael Bostic indicated on Wednesday that the bank is prepared to begin cutting interest rates. His remarks were made ahead of Friday’s nonfarm payrolls report, which is anticipated to be very significant.
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Although recent economic data appears to have strengthened the case for a bigger move, strategists have generally predicted that the Fed will cut rates by 25 basis points at its upcoming meeting.
Information released on Wednesday revealed that U. s. In July, job openings reached a record low in three and a half years, which was interpreted as more evidence of a tight labor market.
Although bets increased for a half-point reduction following the release of the Job Openings and Labor Turnover Survey (JOLTS) report, market participants are firmly pricing in a rate cut at the Fed’s upcoming policy-setting meeting.
According to the CME Group’s FedWatch Tool, traders are currently pricing in a roughly 59 percent chance of a 25 basis point rate cut in September, with 41 percent pricing in a 50 basis point rate cut.
‘Very far from a recession’.
Investors are also likely to evaluate a new set of economic data on Thursday ahead of the next monthly jobs report, which is scheduled for release on Friday. These readings include the most recent weekly initial jobless claims data, the August ADP employment statistics, and the August services data from the Institute for Supply Management.
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“There is no denying that there is a slowdown occurring, but I believe that a recession is very far off. I recognize that the labor market is contracting, and part of that is due to a rise in supply rather than a fall in demand, Lagarias said on Thursday on CNBC’s “Squawk Box Europe.”.
“Yes, there are fewer job openings and less manufacturing, but everyone was anticipating this slowdown, including us. Simply put, there is no evidence of a recession, so I don’t anticipate the Fed acting very aggressively. ****.
Lagarias is not the only one who advises the Fed not to cut interest rates by half a percentage point this month.
Chief financial economist for Europe at Jefferies, Mohit Kumar, told CNBC on Aug. 13 that the Fed’s decision to reduce by 50 basis points in September is “absolutely not needed.”.
The report was aided by Jeff Cox from CNBC.
