Will the Fed cut rates by 25 bps or 50 bps? Via Investing.com

Investing.com — The Federal Reserve is widely tipped to cut interest rates at the conclusion of its final two-day meeting this week, but uncertainty still surrounds the scope of the potential cut.

According to CME Group’s (NASDAQ: ) closely-watched FedWatch tool, on Monday the odds of policymakers making a 50-basis-point cut, rather than a more traditional 25-basis-point cut, were 59 %. Borrowing costs are currently at a 23-year high of 5.25% to 5.5%.

Over the weekend, bets between a quarter point and half a point were even, in a sign of the rapidly shifting debate around the cuts.

Just last week, investors, convinced by last week’s data that showed slightly hotter-than-expected growth in producer and consumer prices in August, placed a higher chance on a quarter-point cut. But recent media reports have suggested the case for a 50 basis point cut remains in play, while former New York Fed President Bill Dudley has said the case for such a cut is strong.

In a note to clients on Friday, analysts at Citi said the Fed’s decision was another “reminder”, adding that they expected a 25 basis point cut this week, followed by two 50 basis point cuts in November and December by the central bank. gatherings.

However, Citi analysts signaled that Tuesday’s “rather weak” retail sales data “could push the Fed to cut by 50 (basis points).” On a month-over-month basis, economists see retail sales growth contracting 0.2 percent in August after expanding 1.0 percent in July.

Signs of slowing activity could prompt the Fed to act more aggressively to support the economy. Officials are already weighing the lingering nature of recent inflation numbers, as well as numbers that point to a weakening US labor market.

Fed Chairman Jerome Powell said in August that “the time has come” to adjust monetary policy because of possible “downside risks” facing the jobs picture. The outcome of a potential easing cycle could be one of Powell’s lasting legacies, especially as the Fed tries to create a so-called “soft landing” — or a cooling of once-skyrocketing inflation that doesn’t lead to a collapse of workforce. demand and the economy in general — after a period of high interest rates.

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