Financial heavyweight Nigel Green, CEO of deVere Group, has urged the US Federal Reserve (Fed) to deliver a 50-point rate cut in September in a bid to avert recession.
This comes as market speculators are now anticipating a 70% chance of a 25 basis points cut and a 30% chance of a 50 basis points cut by the Fed next month.
Recent minutes of the Federal Open Market Committee (FOMC) meeting showed that risks to the inflation forecast were still seen as tilted to the upside, albeit to a smaller degree than at the time of the previous meeting, and that there had been some further progress towards the committee’s 2% inflation objective.
Green, who is at the helm of one of the world’s largest independent financial advisory and asset management firms, on Friday warned that only bold, decisive action from the Fed can prevent an economic catastrophe.
He said that the Fed was teetering on the brink of a critical decision, one that could either save the world’s largest economy from a looming recession or plunge it deeper into peril.
“The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks,” Green said.
“As the Fed is winning the war on inflation – now we must look to the broader economy which is standing on a knife edge.
“Consumer confidence is wobbling, spending is slowing, and corporate earnings are under threat. The Fed cannot afford to tiptoe around these warning signs with a cautious 25-point cut. It’s simply not enough.”
Fed chairman Jerome Powell over the weekend signalled that interest rate cuts are imminent, reinforcing expectations that the central bank will begin easing monetary policy in September.
Speaking at the Jackson Hole Economic Symposium, Powell endorsed an imminent start to interest rate cuts, saying further cooling in the job market would be unwelcome and expressing confidence that inflation is within reach of the US central bank's 2% target.
He also noted that the US labour market was cooling quickly following the softer jobs report from July and the downward revision to payrolls this week, and that FOMC had gained further confidence that inflation was slowing to the central bank’s 2% target.
The US Non-Farm Payrolls revision downward by nearly 820 000 jobs for the year ending March 2024 further fuelled concerns about the US labour market, reinforcing expectations for a September rate cut of 25 basis points, with total easing potentially reaching 100 basis points by year-end.
"We do not seek or welcome further cooling in labour market conditions. We will do everything we can to support a strong labour market as we make further progress toward price stabilities,” Powell said.
Meanwhile, Green said the Fed was too slow to act when the hiking cycle began, adding that a small cut might signal a shift, but it won’t deliver the jolt needed to prevent a potential hard landing.
“A 50-basis point cut in September would send a powerful message to the markets, that the Fed is serious about steering the US economy away from the brink,” Green said.
“The Fed must stop playing catch-up and start leading the charge. Anything less than a 50-basis point cut in September would be a missed opportunity -- one that the economy, and Americans, can’t afford.
“It’s time for the Fed to act boldly, cut rates aggressively, and send a clear message that it’s ready to do whatever it takes to keep the US economy on track."
Meanwhile, the South African Reserve Bank (SARB) is now expected to start reducing interest rates by 25 basis points in September after the headline consumer inflation decelerated to 4.6% in July from 5.1% in June.
This could be followed by another cut of the same margin in November, taking the prime rate to 11.25 by the end of 2024, as inflation is expected to to fall below the 4.5% SARB’s target in September, primarily as a result of slowing from fuel and food prices.
BUSINESS REPORT