Emergency Fed Rate Cut Would Be A Mistake

 With stock markets plunging around the world, traders are talking up the prospect of an emergency interest-rate cut from the  Fed.

Not only is this highly unlikely, it would be counterproductive.

Swathes of investors have gotten over their skis on over-leveraged trades; from borrowing cheaply in low-interest rate Japanese yen to chasing the bubble in technology stocks, especially anything AI related. 

The fabled "Fed put" is a break-glass lever only to be used in event of a proper emergency — and we're not there yet.

The Fed's next meeting is on Sept. 18, and a 50 basis-point reduction is nearly fully priced in by the futures market.

Marcus Ashworth Bloomberg 5 augusti 2024 at 11:49 CEST

https://www.bloomberg.com/opinion/articles/2024-08-05/an-emergency-federal-reserve-rate-cut-would-be-a-mistake

The term "Fed Pivot" refers to the Fed's change in monetary policy from raising rates to lowering rates. The Fed's pivot occurred in 2019, when it lowered interest rates three times after raising them four times in 2018. The Fed's pivot was a response to concerns about global economic growth and trade tensions

Räntehöjningarna i USA 2017–2018 (englundmacro.blogspot.com)

Emergency Fed rate cut to restore market confidence might backfire

“The Fed has two mandates, price stability and full employment. It also has a third one, financial stability, which is only noticed when it is missing,’’  

“But the bar is too high for an emergency rate cut,” Chandler said via phone.

 “I can’t think of a time they’ve done such a thing when there wasn’t some sort of stability issue at hand. Even with the slide in U.S. stocks, we’re still higher on the year. 

And an emergency rate cut aimed at calming the market could cause more panic, considering the Fed’s need to restore market confidence.’’

Vivien Lou Chen MarketWatch 5 August 2024

https://www.marketwatch.com/story/how-an-emergency-fed-rate-cut-to-restore-market-confidence-might-backfire-f017ef9e