Fed Unlikely to Cut Rates Before September Despite Market Turmoil

Recent turmoil in global stock markets, triggered by a sharp slowdown in the U.S. job market, has led to speculation that the Federal Reserve might cut interest rates before its next scheduled meeting in September. However, despite the market volatility, the odds of an emergency rate cut remain low. Chicago Fed President Austan Goolsbee emphasized that the Fed’s mandate focuses on employment and price stability, not the stock market.

While some analysts anticipate a half-percentage-point rate cut at the September meeting, few believe the Fed will act sooner. Kathy Bostjancic, an economist at Nationwide, warned that an emergency cut could cause more panic in the markets. Even former New York Fed President Bill Dudley, who recently advocated for rate cuts, acknowledged that an intermeeting cut is “very unlikely.”

Global stock markets have somewhat recovered after initial losses, and recent data showing a drop in U.S. jobless claims has further eased concerns. As a result, traders have scaled back expectations for an immediate Fed rate cut, now seeing even odds between a quarter-point and half-point reduction in September.

Fed Chair Jerome Powell is expected to provide more guidance at the upcoming Jackson Hole economic symposium. For now, Powell seems likely to maintain the current policy rate, sticking to his statement that any potential rate reduction will depend on forthcoming economic data, particularly regarding jobs, inflation, and consumer spending.

Historically, the Fed has only cut rates between meetings in response to severe market disruptions, such as during the 2008 financial crisis and the COVID-19 pandemic. However, current conditions do not appear to meet that threshold, making a preemptive rate cut before September unlikely.