Guanajuato Silver Company Ltd GSVRF

Rate Cut Shenanigans

[ErinBrockovich]

50 basis-point rate cuts are rare in recent history except for emergency cuts during crisis events, investor says

The Federal Reserve kicked off its rate-cutting campaign on Wednesday afternoon with a half-percentage point reduction. But some investors believe the U.S. central bank jumped the gun with a rate cut that was too big, too soon for the current backdrop.

“Recent economic data suggests the economy is still relatively strong compared to other easing periods with unemployment at 4.2%, higher year over year but at a level that signals full employment, and GDP expanding at a 3.0% annual rate as of Q2 2024,” said Philip Straehl, chief investment officer of the Americas at Morningstar Wealth. He noted that half-point cuts “have been rare in recent decades,” adding that they were used during emergencies, such as the onset of the Covid pandemic in March 2020 and in 2008 during the global financial crisis.

Straehl added that this more aggressive reduction indicates that the Federal Reserve “has gotten comfortable that the downward trends in inflation are sustainable” and is now redirecting its focus to pulling off a soft landing.

— Lisa Kailai Han