Economists predict a quarter-point cut in interest rates when the Fed meet in September however, a bigger 50 basis point reduction could still be on the cards, sending the US into recession.
Many economists fear a bigger cut to interest rates could send the US into a recession, especially following the release of jobs data in July, which was much worse than expected and prompted the FTSE 100 to suffer its worst drop in more than a year.
The recession fears stemmed from the unemployment rate which rose to 4.3 per cent, the highest since October 2021 in July and sent the markets into panic.
This lead to a massive sell-off at the beginning of August which saw the S&P, Dow Jones and Nasdaq all down by 2.6 per cent by the end of the day, further increasing fears that the US economy was entering a recession.
Investors and economists are expecting the Fed will cut rates at its next meeting on September 18. However, experts are unsure as to whether this would cause a recession.
Adam Goodman, Veteran GOP Media Strategist spoke exclusively with GB News on whether he believed there was a possibility of recession amid rumours of an interest rate cut.
Investors were selling off risk assets in fears that the US could be heading towards a recession
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Goodman said: “There’s been speculation about an interest rate cut for months.
“The betting on Wall Street seems to be there will be at least a quarter-point decrease at the next meeting in September.
“But we’re still teetering on the possibility of a recession because you have to look at corporate profits and other major indicators of whether the overall economy and the economy of business, big and small business are healthy, and I think the jury’s still out on that.
“If it comes to pass that in the fall of this year, there is more and more discussion about recession, obviously, that speaks for itself in terms of its impact on the presidential race.”
Other central banks within developed economies, including the Bank of England and the European Central Bank, have recently cut interest rates.
However, this has led to speculation that the Fed have waited too long to act.
A cut in interest rates means it is cheaper to borrow money which should, in theory, act as a boost to the economy.
Last week’s US CPI figures showed that inflation rose by 0.2 per cent, as expected, after falling by 0.1 per cent in June.
Financial markets in the US have now predicted there is now more than 60 per cent chance of the Fed cutting interest rates by 0.25 percentage points in September.
The likelihood of a bigger 0.5 percentage point cut was judged to be 39.5 per cent.
Before the inflation data was published, the markets had predicted that the likelihood of a 0.25 or 0.5 percentage point cut was almost 50-50.
Although an interest rate cut is on the cards, some Fed officials have indicated weariness that rates should be cut.
Michelle Bowman, a Fed governor, said in public said: “Inflation is still uncomfortably above the committee’s two per cent goal .
“I will remain cautious in my approach to considering adjustments to the current stance of policy.”