Investing.com — The Federal Reserve looks set to deliver a “dovish” quarter point rate cut next week, leaving the economy exposed to risks of softer economic data that would likely pressure the central bank into a reactive 50 basis point cut in November.
The clear base case though is a ‘dovish 25’ that falls a bit flat, leaving the Fed, markets, and economy exposed over an intermeeting period that generates a mix of soft and scarier weak data, and likely ends with the Fed delivering a 50 in November,” Evercore ISI said in a note.
Cutting by 25 basis point rather 50 basis point doesn’t present a risk on the day, but in 7-week run up to the November meet. During this intermeeting period, any bad macro news – such as a dud September employment report – would likely be met with worries that the Fed is behind the curve and a recession could be the horizon, generating an financial condition index shock that might also turn a close election.
“There is a high risk of some weak news during this period, as political uncertainty favors soggy spending, cautious hiring and perhaps a bit more firing,” it added.
Still, the signs of slowing inflation as evident by the recent…
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