Federal Reserve Chairman Jerome Powell.
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The US Federal Reserve can afford to deliver a massive 50 basis point interest rate cut next week without spooking markets, an analyst has suggested, as opinion on the central bank’s upcoming meeting remains sharply divided.
Michael Yoshikami, CEO of Destination Wealth Management, said Monday that a bigger cut would show the central bank is willing to act without raising deeper concerns about a broader downturn.
“I wouldn’t be surprised if they jumped all the way to 50 basis points,” Yoshikami told CNBC’s “Squawk Box Europe.”
“On the one hand, that would be viewed as a very positive sign that the Fed is doing what is necessary to support job growth,” he said. “I think the Fed is ready at this point to get ahead of this.”
His comments follow similar comments Friday from Nobel laureate Joseph Stiglitz, who said the Fed should cut rates by half a point at its next meeting.
Policymakers are widely expected to cut rates at their meeting on September 17 and 18, but the extent of this move remains unclear. A disappointing job print on Friday stoked fears of a slowing labor market and briefly tilted market expectations toward a bigger cut before pulling back.
Traders now estimate about a 75% chance of a 25 basis point rate cut in September, while 25% are pricing in a 50 basis point cut, the report said. FedWatch tool from CME Group. One basis point is 0.01 percentage point.
Yoshikami acknowledged that a larger cut could reinforce fears that a “recession ball” is coming, but he insisted such views were overblown, noting that both unemployment and interest rates remain historically low and that corporate profits have been strong .
He said the recent market sell-off, which saw the S&P 500 suffer its worst week since March 2023, was based on the “huge gains” posted last month. In August, all major indices posted gains despite a volatile start to the month, while September is traditionally a weaker trading period.
Thanos Papasavvas, founder and chief investment officer of ABP Invest, also acknowledged that concerns about a possible economic downturn have increased.
The research firm recently adjusted its probability of a US recession from a “mild” 25% in June to a “relatively limited” 30%. However, Papasavvas said the underlying components of the economy – output and unemployment rates – were “still resilient”.
“We are not particularly concerned that we are heading into a US recession,” Papasavvas said on Monday’s Squawk Box Europe broadcast.
The perspectives are in stark contrast to those of other market watchers, such as economist George Lagarias, who told CNBC last week that a massive rate cut could be “very dangerous.”
‘I don’t see the urgency of being fifty [basis point] cutbacks,” Forvis Mazars chief economist told CNBC’s “Squawk Box Europe.”
“The 50 [basis point] The cuts could send the wrong signal to the markets and the economy. It could send a message of urgency and, you know, that could be a self-fulfilling prophecy,” Lagarias added.