There is no compelling reason for the Fed to initiate a large-scale rate cut at the upcoming Federal Open Market Committee (FOMC) meeting, according to Steve Englander, head of global G10 FX research and North American macro strategy at Standard Chartered.
Englander pointed to recent U.S. economic data in a Sept. 17 speech that said he did not support a 50 basis point rate cut, arguing that a larger rate cut could be more damaging than a smaller 25 basis point cut if the decision proves wrong.
Englander said inflation is still not approaching the Fed's 2% target rapidly, while a slight increase in unemployment points to potential economic weakness. Given these factors, a modest 25 basis point cut may be more appropriate, but the final decision will depend on upcoming inflation data.
On the subject, a Bank of America survey released on Tuesday showed a significant increase in global investor confidence in September, marking the first improvement since June. The optimism stems from expectations of a soft landing for the U.S. economy and possible rate cuts by the Federal Reserve. The survey found a shift in asset allocation, with cash holdings falling to 4.2% and investors favoring bond-sensitive assets over cyclicals. The overweight position in utilities reached its highest level since 2008, while the commodity rate fell to its lowest level in seven years.
*This is not investment advice.