Markets Hope for Fed Interest Rate Cuts to Avoid Recession

As concerns about a potential recession grow, economists are urging the Federal Reserve to take decisive action. Steve Blitz, chief U.S. economist at TS Lombard, warns that while the economy is not in recession today, failure to act could make one inevitable by year-end. Traders are anticipating a half-point rate cut in September, with further easing expected to reduce the Fed's short-term borrowing rate by 2.25 percentage points by the end of next year. The Fed's response will be crucial in shaping investor sentiment during this uncertain period. Recent disappointing economic data has intensified worries that the Fed missed a critical opportunity to signal a shift towards easing at its last meeting. Citigroup economist Andrew Hollenhorst noted that the rise in unemployment and other indicators suggest the U.S. economy is at risk of recession. He anticipates that upcoming data will confirm a continued slowdown, reinforcing the likelihood of a half-point cut in September and possibly an intermeeting cut. Despite ongoing job creation and stock market resilience, an emergency rate cut before the Fed's September meeting appears unlikely. Chair Jerome Powell is expected to provide clarity on the Fed's easing strategy, with Joseph LaVorgna of SMBC Nikko Securities predicting a more aggressive three-point rate cut by the end of 2025. Economist David Rosenberg cautions that the Fed is lagging behind the economic curve, similar to its previous missteps regarding inflation. He emphasizes that the central bank has significant room to maneuver, with the potential to cut rates by 5.25 percentage points and restart quantitative easing if necessary.