Why these analysts say the Fed should 'front-load' cuts in potential easing cycle
Investing.com -- The Federal Reserve should not only begin a new cycle of interest rate cuts at its upcoming gathering this week, but also"front-load" those reductions, according to analysts at Alpine Macro.
Financial markets are currently discounting at least 100 basis points in Fed cuts by the end of this year, followed by an additional 125 basis points next year. This would bring the central bank's key policy rate down to around 2.5% to 3.0% in the final months of 2025, compared to the current 23-year high range of 5.25% to 5.5%.
Faster and deeper reductions, some of the analysts argued, may support private sector spending, which could lessen the impact of a possible softening in disposable income growth as the labor market weakens. By extension, personal consumption, a major driver of overall US growth, would then be propped up, they said.
The probabilities were even heading into last weekend, but bets for a jumbo cut were bolstered by media reports suggesting that such a reduction was still an option. Former New York Fed President Bill Dudley has also argued that a bumper cut was needed because short-term interest rates are"far above" a neutral level.
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