The Case Against a 50 BP Move; Major New Poll in PA
Author: Greg Valliere
September 17, 2024
THE FEDERAL RESERVE HAS GONE SLOW on a rate cut but now central bankers are under enormous pressure to slash the funds rate by 50 basis points tomorrow. We don’t think it’s necessary, for several reasons.
FIRST, the economy may be cooling but it’s in solid shape. The Atlanta Fed’s “GDP now” website is predicting a 2.5% growth rate for this quarter — above what economists consider trend growth, which is about 2% to 2.14%.
SECOND, INFLATION HAS NOT BEEN ELIMINATED. It’s rising to about 2.5% — above the Fed’s target of 2%, and wage pressures are strong. Inflation is not falling — it’s just rising less rapidly.
THIRD, A 50 BASIS POINT reduction would generate howls from Donald Trump, who will contend that the Fed is trying to help Kamala Harris. We don’t think the Fed is political, but an aggressive rate cut would keep the central bankers in the limelight as the election approaches.
SO WHY NOT cut by just 25 basis points, which would make a statement that the Fed is still vigilant against inflation? Our advice to the Fed is to cut by 25 basis points, accompanied by a dovish statement that will implicitly promise more reductions to come.
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SOME SURPRISING POLLS: There’s been some movement in the most important state of all — Pennsylvania, where Kamala Harris now has a 3 point lead, still within the margin of error, but she has a decent chance of winning the state’s 19 electoral votes.
OTHER POLLS HAVE RAISED EYEBROWS: Ted Cruz is ahead by only 4 points in his Texas Senate race, and Harris trails by only 4 points in Iowa. In state after state, the abortion issue is a huge albatross for the GOP.
THE VIOLENCE against Trump and the ludicrous claims of immigrants eating pets are major wild cards, making predictions more difficult than usual, but with six weeks left in this surreal campaign, Harris is the favorite.
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