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In the wake of recent global equity sell-offs, two senior officials at the US Federal Reserve Bank, Presidents Austan Goolsbee and Mary Daly, have stepped forward to address investor anxiety. The timing of the central bank’s rate cuts and responsiveness to signs of economic weakness in the US have raised concerns.
Reassurance and Market Turbulence
The recent stock market selloff has resulted in increased volatility reminiscent of past crises. In Japan, the Topix index fell to historic lows, while in the US, the Nasdaq 100 fell but recovered somewhat. The worldwide panic led to crashes, although they were short-lived, at least for now!
Goolsbee and Daly attempt to calm fears that the Fed is delaying its rate cuts. San Francisco Fed President Mary Daly said at an event in Hawaii that Many of the latest job report’s details leave “a little more room for confidence that we’re slowing but not falling off a cliff,” “Our minds are quite open to adjusting the policy rate in coming meetings,” she said. When and by how much will depend on incoming economic data, of which there is a lot before the Fed’s next meeting in mid-September, she said, adding, “it’s extremely important that we not let (the job market) slow so much that it tips itself into a downturn.”
Rate Cuts and Recession Risk
The New York Fed forecasts a 56% probability of an economic downturn by June next year. The Fed’s officials are resisting the idea of an imminent recession but acknowledge that rates have to be adjusted. The absence of a rate cut in September could adversely affect stock levels and increase recession risks.
However, one must consider that the economy hasn’t been great for years and has previously survived shocks better than expected. The current jobs report, inflation, and uncertainty about the Fed’s rate cut situation will likely lead to occasional shocks. However, the markets will likely remain considerably steady amid these challenges.
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