The Fed has cut its rate by a powerful 50 bps amid recession fears

Key receivers

The Fed's rate cut to 4.75%-5.00% reflects growing economic concerns. Following the Fed's decision, major banks increase the chances of a recession.

Share this article

The Federal Reserve cut interest rates by 50 basis points to 4.75%-5.00% today, a move that is likely to shape financial markets in the coming months. This drastic reduction reflects the growing economic concern among policymakers.

The rate cut, on top of the usual 25 bps adjustment, will be in response to several economic indicators. The unemployment rate in the United States rose to 4.2% in July 2024, the highest level since October 2021. This increase triggered the “Sahm ​​Rule,” an indicator of a recession when unemployment rises by 0.5 percent over a 12-month period. .

The July jobs report showed 114,000 jobs added, below economists' expectations of 185,000. This data, combined with inflation of 2.5% (the Fed's long-term goal of 2%) led to the central bank's decision.

The 50 bps cut has created a debate among market analysts. Some see it as a necessary step to prevent a potential recession. Others have suggested that such cuts are often preceded by economic problems, so such drastic reductions can themselves create recessionary fears.

The market's reaction to this news is yet to be seen. Low interest rates typically hurt stock prices and other risk assets, but investors may interpret this move as a sign of economic weakness.

Major financial institutions have adjusted their economic outlook. JPMorgan in 2010 It raised the probability of a US and global recession by 2024 to 35%, up from 25%. Goldman Sachs raised the chance of a recession next year from 15 percent to 25 percent.

The Federal Reserve has indicated that further cuts are possible as it balances inflation control with growth and employment support. This suggests that today's move could be the start of a new thawing cycle.

As this policy change is implemented, upcoming economic data and federal communications will be closely watched. Central bank actions will play a role in determining whether the US can sustain growth given the current challenges.

Businesses and consumers can expect lower borrowing costs. However, the broader implications of this deceleration and what it says about the US economy may be an ongoing analysis.

Earlier this week, the Federal Reserve is expected to cut by 50 basis points, possibly boosting bitcoin, amid mixed economic signals.

In June, Democratic senators argued that the Federal Reserve should lower interest rates to reduce inflation and prevent a recession, at odds with the European Central Bank's policies.

In July, economists speculated that the Federal Reserve may prioritize the weak labor market over inflation in future rate decisions.

Last month, 10X Research expressed concern that a massive 50 basis-point rate cut by the Federal Reserve would negatively impact bitcoin, pointing to deeper economic problems.

Earlier this week, the Federal Reserve cut interest rates by 50 basis points as economic indicators such as rising unemployment and a weak July jobs report pointed to a looming recession.

Share this article