Steve Englander, head of global G10 FX research and North American macro strategy at Standard Chartered, has expressed doubts about a substantial rate cut by the Federal Reserve at the upcoming meeting. He bases his position on the latest U.S. economic data.
Arguments Against a Major Rate Cut
Englander noted that inflation is still not approaching the Fed's 2% target rapidly, while a slight increase in unemployment indicates potential economic weakness. Given these factors, a modest 25 basis point cut may be more appropriate.
Investor Reaction
According to a survey by Bank of America, there was a significant increase in global investor confidence in September, marking the first improvement in recent months. The optimism stems from expectations of a soft landing for the U.S. economy and possible rate cuts by the Federal Reserve. The survey found a shift in asset allocation, with cash holdings falling to 4.2% and investors favoring bond-sensitive assets over cyclicals. The overweight position in utilities reached its highest level since 2008, while the commodity rate fell to its lowest level in seven years.
Conclusions
This complex and ambiguous economic policy issue requires careful analysis. Based on current data, a large rate cut by the Federal Reserve may have undesirable consequences. The final decision will depend on upcoming inflation data and the state of the labor market.
The discussion of the potential rate cut continues, and the final decision will depend on new economic indicators. The moderate approach proposed by Standard Chartered's economists suggests avoiding abrupt changes and focusing on data clarification.
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