Wall Street Urges Fed for Bigger Rate Cuts as Economic Concerns Grow

Wall Street is urging the Federal Reserve to cut interest rates more aggressively after significant stock market losses and a disappointing jobs report have heightened fears of a recession.

Market Expectations for Rate Cuts

Investors are now betting that the Fed will take substantial action in the remaining months of 2024. They predict a half-percent rate cut in both September and November, followed by an additional quarter-point cut in December. Previously, expectations were for two smaller cuts by the end of the year. Michael Feroli, the chief economist at JPMorgan, suggests there’s a strong case for a rate cut even before the next scheduled policy meeting on September 17-18.

“There is a strong case to act before September,” Feroli said in a research note, adding that the Fed appears to be "materially behind the curve." He expects a 50 basis point cut in September, followed by another 50 basis point cut in November.

Opinions on Timing and Impact

Wilmer Stith, a bond portfolio manager at Wilmington Trust, believes that an unscheduled rate cut might scare investors. "If things continue to deteriorate at this rate, anything is possible,” Stith said. However, he added, "I think it’s unlikely that they move between meetings because that could increase market fear." Stith considers a 50 basis point cut in September to be a reasonable possibility, depending on upcoming data.

Fed Chair Jay Powell’s Stance

At a recent press conference, Fed Chair Jay Powell downplayed the likelihood of a 50 basis point cut in September, suggesting a 25 basis point cut is more probable if the Fed decides to act. "I don’t want to be specific about what we’re going to do, but that’s not something we’re considering right now," Powell remarked. He will have another opportunity to share his thoughts on monetary policy during a speech at the Fed’s annual conference in Jackson Hole, Wyoming, in about two weeks.

Economic Data and Labor Market Concerns

The urgency for Fed action grew after last Friday's labor market data showed the US economy added only 114,000 nonfarm payroll jobs in July, well below the 175,000 expected by economists. The unemployment rate rose to 4.3%, the highest since October 2021. This has led some Fed watchers to argue that the central bank should have cut rates at its July meeting to preempt a slowing economy.

Mixed Views Among Fed Officials

Chicago Fed President Austan Goolsbee told Bloomberg that the central bank will not overreact to a single report and will gather more data before the next meeting. However, he acknowledged that if restrictive rates persist and unemployment continues to rise, policymakers will need to respond.

Baird strategist Ross Mayfield told Yahoo Finance that a 50 basis point cut should be considered. "With hindsight, it’s clear they probably should’ve started cutting in July,” Mayfield said.

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