US Fed Rate Cut Incoming? Jerome Powell Hints At First Cut Since 2020; Dollar Weakens, Gold Surges

US Central Bank Chief Jerome Powell begins, as markets teeter on the edge, anticipating his next words.

The September Federal Reserve meeting stands as one of the most crucial economic events this year, not just for the United States but globally.

Experts, including economists and market analysts, are weighing in, speculating that the US Fed may cut interest rates for the first time since 2020. The American central bank has held its key lending rate at a two-decade high of between 5.25 and 5.50 per cent for the past 14 months.

With the European Central Bank recently cutting rates by 25 basis points and China preparing to reduce rates on five trillion dollars' worth of mortgages, all eyes are now on the US Fed's rate decision.

Even Fed Chair Jerome Powell has hinted at a potential cut in the upcoming meeting, raising expectations. But the big question remains: What will be the magnitude of this rate cut?

Before we delve into that, let's explore the US Fed's role. The American central bank has two key mandates: maintaining price stability and promoting a robust job market.

With inflation at its lowest since February 2021—sitting at 2.5%—it appears that price stability is no longer the primary concern.

According to Thomas Simons, an economist at Jefferies, the Fed has been cautious about cutting rates for fear of reigniting inflation. However, with recent data suggesting inflation is under control, the door is now open for a potential cut to boost growth.

In fact, markets are pricing in a 61% chance of a 50-basis point rate cut, according to the CME FedWatch tool.

However, experts at ING Think, who had earlier suggested a 50 basis points cut, now believe the latest jobs and inflation data lean more towards a 25 basis point reduction.

As we await the crucial rate decision, the impact is already being felt across asset classes. The US 10-year bond yield has dropped from 4.28% in July to 3.65% now. The US Dollar has also weakened, with the Dollar Index falling to 100.96. Investors are moving towards safer assets, and gold prices have surged to all-time highs, with some analysts predicting it could reach 3,000 dollars.

These movements across asset classes align with expert commentary. With inflation stable and markets reacting in real-time, all eyes are on Jerome Powell. And the big question is will the Fed opt for a 25 or a 50 basis point cut?

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