Risk of 50 bp Cut By the Fed Tomorrow Keeps the Greenback on the Defensive

Fed’s Aggressive Rate Hike Cycle Could Be Coming to an End

The US dollar has been under pressure in recent weeks, and the risk of a 50 basis point cut by the Federal Reserve tomorrow is only adding to the selling pressure. If the Fed does cut rates by such a large amount, it would be a sign that the central bank is becoming increasingly concerned about the economy and is willing to take aggressive action to shore it up. This would likely lead to further weakness in the dollar and could have a major impact on the global economy.

The Fed’s Aggressive Rate Hike Cycle

The Fed has been raising interest rates aggressively in an effort to combat inflation. The central bank has hiked rates by a total of 300 basis points since March, and is expected to hike rates by another 75 basis points at its meeting next week.

However, there are growing concerns that the Fed is tightening monetary policy too quickly and could cause a recession. Economic growth has slowed in recent months, and the housing market is in decline. Additionally, the European Central Bank just raised rates by .75 basis points - the most ever in its history and the first time it has raised rates in 11 years. The Fed may not want to be more aggressive. There is also concern that a 75 bp rate hike by the Fed could roil markets just as the European Central Bank raised rates for the first time in 11 years by .75 b.p.

The Risk of a 50 Basis Point Cut

If the Fed does cut rates by 50 basis points, it would be a major surprise. The market is currently pricing in a 75 basis point cut, and anything less would be seen as dovish. This would likely lead to a sell-off in the dollar and could trigger a rally in stocks and other risk assets.

However, a 50 basis point cut could also be seen as a sign that the Fed is becoming increasingly concerned about the economy. This could lead to a loss of confidence in the dollar and could have a negative impact on the global economy.

The Impact of a Fed Rate Cut

The impact of a Fed rate cut would depend on the size of the cut and the market’s reaction. A small cut would likely have a limited impact, while a large cut could have a significant impact. The larger the cut, the greater the potential impact on the dollar, stocks, and the economy.

Conclusion

The Fed’s decision on interest rates tomorrow will be closely watched by markets around the world. A 50 basis point cut would be a significant surprise and could have a major impact on the dollar and the global economy. However, it is important to remember that the Fed is data-dependent and will make its decision based on the latest economic data. Hopefully the Fed will not hike rates by 75 b.p. tomorrow as that would roil markets at a time when the ECB just raised rates by that larger amount yesterday.