Federal Interest Rate Cuts Might Not Be As Deep As Expected

The markets are preparing for the upcoming interest rate cuts, overseen by the Federal Reserve. New information points to the cuts not being as severe as the markets anticipate, though.

That comes from a note issued by BlackRock Investment Institute, which is a component of the largest asset manager in the world. The institute says that the US central bank is less likely to make deep cuts to the interest rate when inflation is so resilient, barely moving at all. They said the Fed also had to take into account the strength of the economy and that there is some progress being seen in multiple sectors there.

The size of the interest rate cuts are expected to be announced on September 18th, which places them well before the November election. The Fed has to take the election year into account as well, since that will shake up the economy significantly too. Speculation created by the election will be exacerbated by the interest rate cuts, leading to a fragile, frenzied stock market.

How Much of a Rate Cut Is Expected?

The expectation is that 120 basis points will be cut this year, and then by the end of next year, a total of 250 will have been cut. If that occurs, then it would cause the interest rates to move to 2.8%-2.9% from where they are now at 5.25%-5.5%.

If BlackRock is right, then the cuts will not be quite so sharp, as the Fed may not want to rock the boat too much. That is especially true in the month of September, when the stock market and cryptocurrency markets both struggle to perform well.

Investors should keep in mind that even if the interest rate cuts do help inflation to cool down, that likely will not last for very long. BlackRock says even though many analysts are calling for cuts that are as deep as what have been done in the past, those predictions may be unreasonable.