Speculation is mounting over the upcoming Federal Reserve meeting in September, with many anticipating a rate cut. The question now is not if, but how big this cut will be.
Prior to a disappointing jobs report released on Friday, investors were expecting a traditional quarter-point cut. However, the sentiment has shifted, and there is a growing belief that the Fed may opt for a larger cut of at least half a point, with some even speculating on a three-quarters point reduction. If this were to happen, it would be the first time the central bank has made such a significant cut since March 2020, with the last occurrence dating back to December 2008.
Despite the uncertainty surrounding the size of the rate cut, its immediate impact on the economy may be limited. It typically takes around a year for changes in interest rates to be fully reflected in the broader economy.
Meanwhile, US Treasury yields have already started to decline in anticipation of a substantial rate cut. As Treasury yields are a key indicator for interest rates on various loans, this decrease could potentially alleviate some of the financial pressures faced by borrowers.
