Fed risks falling behind (again) unless it opts for a half-point rate cut: deVere
The Federal Reserve stands at a pivotal crossroads this week. If policymakers deliver only a quarter-point rate reduction at next week’s meeting, they risk allowing economic conditions to deteriorate before policy can catch up, deVere Group cautions.
The global financial advisory giant is calling for a half-percentage-point cut while acknowledging that markets still expect a smaller move.
“The US central bank has little room for hesitation,” says Nigel Green, CEO of deVere Group.
“The labour market is losing momentum, unemployment is at a four-year high, and wage growth is easing. A 25-basis-point trim would leave policy trailing the reality on the ground.”
August payroll data underscored the slowdown. Nonfarm job growth came in well below forecasts and the unemployment rate jumped to 4.3%, the highest since late 2021.
Average hourly earnings also cooled. Futures tracked by the CME FedWatch tool show investors pricing roughly a 90% chance of a quarter-point cut and only a small probability of a larger move.
“Markets are conditioned for caution, but the economy demands something bolder,” Nigel Green continues.
“A half-point cut would reinforce consumer confidence and business investment at a time when trade frictions and rising input costs are already weighing on activity.”
Trade tensions are adding complexity. President Trump’s extensive tariff program is pushing up import costs from electronics to industrial metals, while energy prices have climbed through late summer.
Core inflation remains close to the Fed’s 2% goal, but forward-looking indicators of hiring and output point to a broader slowdown.
“Inflation is no longer the overriding threat,” notes the deVere chief executive.
“The greater risk is a loss of growth momentum. The Fed’s dual mandate—price stability and maximum employment—requires decisive action when one side of the equation weakens.”
Nigel Green points to the Fed’s recent history as a cautionary tale.
“In 2021, the central bank misread the persistence of inflation, holding rates near zero while prices surged.
“Policymakers assured the public it was ‘transitory,’ only to scramble with aggressive hikes later. That delayed response forced steeper tightening and rattled both markets and households.
“History teaches us that waiting for perfect data can be costly.”
Global markets are already positioning for easier policy. Treasury yields have fallen to three-month lows, the dollar has softened against risk-sensitive currencies, and US equities are approaching record highs as traders bet on lower borrowing costs.
“The Fed has an opportunity to demonstrate leadership,” Nigel Green adds. “A half-point cut now would not be reckless. It would be a strategic step to protect growth and safeguard jobs.”
deVere expects the central bank to deliver at least 75 basis points of total easing by year-end if the labor market continues to weaken, with a quarter-point this month followed by additional reductions later in the year.
“Investors and the broader economy need reassurance that the Federal Reserve is prepared to move with the pace of change.
“A larger cut this week would send that signal and help secure the expansion,” concludes the deVere Group CEO.