Next Thursday, the interest rate cut is approaching. How do institutions predict the trend after the rate cut?

Author: Nan Zhi, Odaily Planet Daily

On September 19 (next Thursday) at 02:00, the Federal Reserve will announce its interest rate decision. A rate cut has become a foregone conclusion, but the extent of the cut in September remains uncertain. The current market generally believes that if the Federal Reserve chooses to cut rates by 50 basis points, it would signal a risk of economic recession. How do institutions view the extent of the rate cut in September, and what are their predictions for the market trends post-rate cut? Odaily will summarize the answers in this article.

How much will the cut be in September? How many cuts will there be this year?

Reuters Survey: 91% of economists believe in a 25 basis point cut, three cuts this year

A Reuters survey shows that most economists believe the Federal Reserve will cut rates by 25 basis points at each of its remaining three policy meetings in 2024. Out of 101 economists surveyed, only 9 expect the Fed to cut rates by 50 basis points next week.

Stephen Stanley, Chief U.S. Economist at Santander Bank, stated: "Although the employment report was weak, it was not catastrophic. Last Friday, both Williams and Waller did not provide clear guidance on the urgent question of whether to cut rates by 25 or 50 basis points on September 18, but they both made relatively positive assessments of the economy, which strongly points to a 25 basis point cut in my view."

Of the 95 economists surveyed, 65 believe that after next week's meeting, the Federal Reserve will cut rates two more times this year in November and December, each by 25 basis points. Last month, 55 out of 101 economists held this view.

"Fed Whisperer": Prefers 25 basis points as a starting point

Nick Timiraos, the "Fed Whisperer," commented on Waller's speech, stating that Waller did not explicitly mention a cut of "25" or "50" basis points but leaned towards supporting a 25 basis point cut as a starting point, clearly reserving the option to "expeditiously" accelerate cuts if "new data" shows further deterioration.

Sumitomo Mitsui Banking Corporation: 50 basis points

Hirofumi Suzuki, Chief FX Strategist at Sumitomo Mitsui Banking Corporation in Tokyo, stated that a slightly weaker-than-expected U.S. employment report would not prompt the Federal Reserve to cut rates by 50 basis points at the September meeting. However, combined with past revisions, this outcome suggests that the Fed could potentially cut by 50 basis points, depending on indicators in the months to come.

Nomura Securities: Three cuts this year

Andrzej Szczepaniak, an economist at Nomura Securities, stated: "Due to the Fed's decision to wait, it may need to cut rates more sharply, but the macroeconomic outlook in the U.S. remains quite resilient. Everything now depends on the labor market."

Andrzej Szczepaniak predicts that the European Central Bank will cut rates again this month and will cut once more before the end of the year. He indicated that the Federal Reserve may also take three actions this year, and the market may be overly optimistic in thinking that the Fed will do more than the ECB.

The impact on the stock market seems to be more related to when the expectations of rate cuts solidify rather than when they actually occur—thus, the Fed's boost to the stock market may have already ended.

Saxo Markets: 25 basis points, a 50 basis point cut could cause panic

Charu Chanana, Global Market Strategist and Head of FX Strategy at Saxo Markets, stated that overall, the global data conveys a very clear message: we are entering a period of economic slowdown.

Chanana stated: "My inclination is for a 25 basis point cut; there is no reason to panic. If the Fed were to immediately cut by 50 basis points, it could cause some panic. I believe 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 cut combined with very dovish rhetoric will offset the impact of not cutting by 50 basis points now."

How institutions view market trends post-rate cut

Bitwise: Market will start to rise after uncertainty is removed

Matt Hougan, Chief Investment Officer at Bitwise, expects that after the current macro uncertainty begins to dissipate in October and November, cryptocurrencies will see a significant rise. He stated, "The market hates uncertainty, and there is a lot of uncertainty in the current market."

At this stage, although the market generally believes the Fed will cut rates, the likelihood of a 50 basis point cut in September has decreased. However, as Wednesday's CPI data and next week's key Fed meeting approach, the likelihood of a cut exceeding 125 basis points by December has increased.

BlackRock: If a 50 basis point cut occurs, it could be a bad sign

Jeffrey Rosenberg, Senior Portfolio Manager at BlackRock, stated that the danger lies in the possibility that if the Fed's easing this month is 50 basis points, it may suggest concerns about the economy rather than reassuringly indicating that policymakers are taking timely action to avoid a recession.

10x Research: If a 50 basis point cut occurs, it could be a bad sign × 2

10x Research stated that if the Fed cuts rates by 50 basis points on September 18, the so-called bullish liquidity easing cycle could adversely affect risk assets, including cryptocurrencies.

A 50 basis point cut next week could indicate heightened economic concerns or a lag in responding to the impending economic slowdown, leading investors to reduce their exposure to risk assets like BTC and stocks.

MN Trading: Bitcoin valuation is cheap, recession will be a catalyst for a bull market

Michaël van de Poppe, founder of MN Trading, posted on X that he does not believe there will be a major crash for BTC in 2024.

We are actually on the verge of the "final" run of a stock bull market, and the likelihood of a major crash in the stock market is much higher, which could drag down Bitcoin.

However, Bitcoin's valuation relative to the S&P 500 index shows that the market may be replicating the bull market cycle of 2019-2020, as we have fallen 35% from historical highs relative to the S&P index. This means Bitcoin will rise until March or April 2025, followed by a period of consolidation/adjustment, and then rise again until 2026, peaking at some point in 2026, depending on the liquidity and macroeconomic competitive environment at that time. Considering the impact of ETFs, I also believe the currently estimated price will be higher than everyone's expectations.

Economic recession or weakness could become a catalyst for the bull market cycle, as investors may seek alternative economic systems.

BCA: Historical patterns indicate that the economy tends to recession after rate cuts

Peter Berezin, Chief Global Strategist at BCA Research, recently wrote that investors should prepare for a potential recession in the U.S. economy, as the Federal Reserve may not be able to save the economy, and investors' strategies should change accordingly.

Previously, the economy fell into recession within a few months after central banks began cutting rates in January 2001 and September 2007. Even if the Fed does provide more easing than currently priced in, the effects will only be lagged.

If the Fed fails to prevent a recession, the S&P 500 index is expected to decline significantly, and price-to-earnings ratios will also fall. To cope with a recession, investors are advised to buy bonds.