Wed, September 18, 2024 at 17:12

• 

  Kang-hoon

  • Hello, Annie.

  • Today, I have some significant news regarding the U.S. Federal Reserve and a request from a trio of Democratic senators.

  • 
• Annie

  • Oh, that sounds important!

  • What exactly are they requesting?🤔

  
• 

  Kang-hoon

  • Senators Elizabeth Warren, Sheldon Whitehouse, and John Hickenlooper are urging the Federal Reserve to cut the federal funds rate by 75 basis points this week.

• Annie

  • 75 basis points?

  • That's quite a significant cut.

  • Why are they pushing for such a large reduction?

  
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• 

  Kang-hoon

  • They argue that the risks of a recession and a softening labor market justify a substantial rate cut.

  • They believe the current elevated interest rates are not effectively addressing inflation drivers, especially housing costs.

• Annie

  • I see.

  • So, they think a smaller cut wouldn't be enough to address these issues?

  
• 

  Kang-hoon

  • Exactly.

  • They believe a 25-basis-point cut, which some Fed officials have signaled, would be insufficient given the state of the American economy.

• Annie

  • What are the chances of the Fed actually making such a large cut?

  
• 

  Kang-hoon

  • According to the CME FedWatch Tool, there's a 65% chance the Fed will cut the rate by 50 basis points and a 35% chance it will cut it by 25 basis points.

  • There's no estimated chance for a 75-basis-point cut.

• Annie

  • So, the senators' request seems quite ambitious.

  • What would be the impact if the Fed did cut rates by 75 basis points?

  
• 

  Kang-hoon

  • A 75-basis-point cut would bring the federal funds rate to 4.5-4.75%, which is still higher than it was at any point between November 2007 and January 2023.

  • It could potentially stimulate the economy by making borrowing cheaper.

• Annie

  • But wouldn't that also risk increasing inflation again?🤨

  
• 

  Kang-hoon

  • That's a valid concern.

  • However, the senators argue that the current labor market is non-inflationary and that we should be closer to neutral levels.

  • They believe the benefits outweigh the risks.

• Annie

  • It's a complex situation.

  • How has the Fed responded to this request so far?

  
• 

  Kang-hoon

  • As of now, the Federal Open Market Committee is meeting this week to determine the U.S. monetary policy and set the federal funds rate.

  • They haven't made any public response to the senators' letter yet.

• Annie

  • Got it.

  • So, we have to wait and see what decision they make.🤔

  
• 

  Kang-hoon

  • Yes, the outcome of this meeting will be crucial.

  • It will give us a clearer picture of the Fed's stance on monetary policy moving forward.

• Annie

  • Do you think this news is positive or negative for the market?

  
• 

  Kang-hoon

  • In the short term, I would consider it a negative development.

  • The uncertainty around such a significant rate cut could lead to market volatility and investor apprehension.

  • 
• Annie

  • That makes sense.

  • Thank you for the detailed explanation, Kang-hoon.😊

  
• 

  Kang-hoon

  • You're welcome, Annie.

  • Always here to help you understand the complexities of the market.

  • Upon comprehensive consideration, this news is perceived as a 😱Bearish.