As panic spread through the U.S. stock market, there’s a growing chorus of calls for the Federal Reserve (Fed) to implement an emergency interest rate cut this week.
Business Insider reported that some economists see a 60% likelihood of the Fed cutting rates within the week in response to demand for such action.
Disappointing job figures released on the 2nd have intensified recession fears, leading to sharp declines in the Nasdaq and Dow Jones indices. These declines were further fueled by earlier drops in Asian markets.
No Federal Open Market Committee (FOMC) meetings are scheduled for August, with the next one planned for September 17-18.
Jeremy Siegel, a professor at the Wharton School of the University of Pennsylvania, told CNBC that the Fed should urgently cut rates by 0.75 percentage points this week and consider a similar reduction at the next FOMC meeting. He argued that larger cuts might be necessary, emphasizing that the current situation requires at least this much intervention.
Despite these calls, the Fed has not indicated an imminent emergency rate cut, even though it hinted at a possible reduction in September following last week’s FOMC meeting.
Historically, the Fed has enacted emergency rate cuts only during significant crises, such as the aftermath of the dot-com bubble burst in 2001, the 9/11 attacks, the 2008 financial crisis, and the onset of the COVID-19 pandemic in March 2020.
While the current state of the U.S. economy may not yet justify an emergency rate cut, there’s significant concern over the Fed’s ability to engineer a soft landing and stave off a recession.
However, some experts, like Jim Smigiel, Chief Investment Officer at SEI, suggest that an early rate cut could damage confidence in monetary policy, considering the current economic conditions.
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