The Stock Market Plummets and Speculation Arises
In recent days, the stock market has experienced a significant downturn, with the S&P 500 falling by 6% since July 31. The turmoil on Wall Street has raised concerns among experts about the possibility of an emergency rate cut by the Federal Reserve before its September meeting. The Federal Reserve’s decision to maintain benchmark interest rates at a 23-year high following its July 31 meeting has added fuel to the speculation.
Is an Emergency Rate Cut Likely?
Traders have estimated a 60% chance of an emergency interest rate cut of 0.25 percentage points within a week, while some experts believe the likelihood is lower, at around 30%. Chicago Fed President Austen Goolsbee has indicated that the Fed is prepared to address further economic deterioration if necessary. However, he remains optimistic about the U.S. economy’s outlook despite weaker-than-expected job data.
The History and Likelihood of Emergency Rate Cuts
Over the past 30 years, the Federal Reserve has implemented emergency rate cuts nine times. While emergency rate cuts outside of scheduled meetings are not unprecedented, they typically occur in the midst of financial crises. The last emergency rate cut took place in March 2020 during the onset of the coronavirus pandemic.
Many economists believe that the Fed may wait until its September meeting to adjust borrowing costs, citing the relatively stable performance of major stock indexes. Concerns have been raised that an emergency rate cut could negatively impact confidence in the economy and lead to speculation about hidden information known only to the Fed.
