On the eve of the September interest rate cut storm: 25 or 50 basis points, how do institutions view the market outlook?

Original title: "Rate cut is coming next Thursday, how do institutions predict the trend after the rate cut?"

Original author: Nan Zhi, Odaily Planet Daily

The Fed's interest rate decision will be announced at 02:00 on September 19 (next Thursday). The rate cut is a foregone conclusion, but the extent of the September rate cut is still undecided. The current market generally believes that if the Fed chooses to cut interest rates by 50 basis points, it implies the risk of economic recession. How do institutions view the extent of the September rate cut, and how do they predict the market trend after the rate cut? Odaily will summarize the answers in this article.

How much is the rate cut in September? How many times will it be cut this year?

Reuters poll: 91% of economists surveyed believe the interest rate will be cut by 25 basis points, and there will be three interest rate cuts this year

A Reuters survey showed that most economists surveyed believed that the Federal Reserve would cut interest rates by 25 basis points at each of the remaining three policy meetings in 2024. Only 9 of the 101 economists expected the Fed to cut interest rates by 50 basis points next week.

"The jobs report, while weak, was not catastrophic," said Stephen Stanley, chief U.S. economist at Santander. "Neither Williams nor Waller on Friday provided clear guidance on the pressing question of a 25 basis point versus a 50 basis point cut on Sept. 18, but both gave relatively benign assessments of the economy that, in my view, point strongly to a 25 basis point cut."

Sixty-five of 95 economists surveyed believe the Fed will cut rates two more times this year, by 25 basis points each in November and December, after next week's meeting. Fifty-five of 101 economists surveyed said so last month.

"Fed Mouthpiece": Tend to start with 25 basis points

"Fed Mouthpiece" Nick Timiraos said in response to Waller's speech that Waller did not explicitly mention the "25" or "50" basis point rate cut in his speech, but tended to support starting with 25 basis points, and explicitly reserved the option of accelerating rate cuts "as appropriate" if "new data" showed further deterioration.

Sumitomo Mitsui Banking Corporation: 50 basis points

Hirofumi Suzuki, chief foreign exchange strategist at Sumitomo Mitsui Banking Corporation in Tokyo, said the slightly weaker-than-expected U.S. jobs report would not prompt the Fed to cut rates by 50 basis points at its September meeting. However, combined with past revisions, the result means there is a chance that the Fed could cut rates by 50 basis points, depending on indicators beyond next month.

Nomura Securities: 3 rate cuts this year

Andrzej Szczepaniak, an economist at Nomura Securities, said: "Since the Fed has decided to wait, it may need to cut rates more sharply, but the macroeconomic outlook for the United States remains quite resilient. Now everything depends on the labor market."

Andrzej Szczepaniak predicts that the ECB will cut rates again this month and once more before the end of the year. He said the Fed could also take action three times this year, and that markets may be overly optimistic that the Fed will do more than the ECB.

The impact on stocks appears to be more related to when expectations of rate cuts solidify than when they actually happen - so the Fed's boost to stocks may be over.

Saxo Markets: 25 basis points, 50 basis points would cause some panic

Charu Chanana, global market strategist and head of FX strategy at Saxo Markets, said that overall, the message conveyed by global data is very clear, that is, we are entering a period of economic slowdown.

Chanana said: "My inclination is a 25 basis point rate cut, there is no reason to panic. If the Fed cuts interest rates by 50 basis points immediately, it may cause some panic. I think they will adopt very dovish language and leave room for a 50 basis point cut in November or December if necessary. A 25 basis point rate cut plus very dovish remarks will make up for the impact of not cutting interest rates by 50 basis points now."

How do institutions view the trend after the rate cut?

Bitwise: The market will start to rise after the uncertainty is eliminated

Bitwise Chief Investment Officer Matt Hougan expects cryptocurrencies to see big gains in October and November after the current macro uncertainty begins to dissipate, saying "markets hate uncertainty and there is a lot of uncertainty in the market right now."

At this stage, while the market generally believes that the Fed will cut interest rates, the probability of a 50 basis point cut in September has declined. However, with Wednesday's CPI data and the key Fed meeting next week approaching, the probability of a rate cut of more than 125 basis points by December has increased.

BlackRock: If the rate cut is 50 basis points, it may be a big deal

The danger is that if the Fed eases by 50 basis points this month, it may suggest concerns about the economy rather than reassuring that policymakers are acting in time to avoid a recession, said Jeffrey Rosenberg, senior portfolio manager at BlackRock.

10x Research: If the rate cut is 50 basis points, it may be a big deal × 2

10x Research said that if the Federal Reserve cuts interest rates by 50 basis points on September 18, the so-called bullish liquidity easing cycle may have an adverse impact on risky assets including cryptocurrencies.

A 50 basis point rate cut next week may mean increased economic concerns or falling behind in responding to the upcoming economic slowdown, causing investors to reduce their exposure to risky assets such as BTC and stocks.

MN Trading: Bitcoin valuation is cheap, and recession will become a bull market catalyst

MN Trading founder Michaël van de Poppe posted on X that he does not think there will be a big crash in BTC in 2024.

We are actually on the verge of the ‘final’ run of the equity bull market, and there is a much greater chance of a big stock market crash, which could drag down Bitcoin.

But Bitcoin’s valuation relative to the SP 500 shows that the market may be replicating the 2019-2020 bull cycle, where we fell 35% from all-time highs relative to the SP. This means Bitcoin will rise until March-April 2025, then a period of consolidation/correction, and then rise to 2026, peaking at some point in 2026, depending on liquidity and the macroeconomic competitive environment during that period. Given the impact of ETFs, I also think the estimated price now will be higher than everyone expects.

A recession or weakness could be a catalyst for a bull market cycle as investors may seek alternative economic systems.

BCA: Historical patterns show that a recession follows a rate cut

Peter Berezin, chief global strategist at BCA Research, recently wrote that investors should prepare for a potential recession in the U.S. economy because the Fed may not be able to save the economy and investors' strategies should change accordingly.

Previously, the economy fell into recession within a few months of the central bank starting to cut interest rates in January 2001 and September 2007. Even if the Fed does provide more easing than is currently priced in, the impact will only be delayed.

If the Fed fails to prevent a recession, the SP 500 is expected to fall sharply and the price-to-earnings ratio will also fall. To cope with a recession, investors are advised to buy bonds.

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