The big question of the week: How far will the Fed go?

It’s interest rate week — and speculations are still swirling around the Federal Reserve’s moves in its two-day meeting tomorrow and Wednesday, with analysts torn between the arguments for a 25 bps cut and a more aggressive 50 bps cut amid persistent inflation and a cooling job market.

In one corner: Conservative voices argue that inflation remains a concern — particularly in the services sector — and that a smaller rate cut would be a safer move.

And in the other: A rapidly cooling job market, which presents a more pressing risk than inflation, underpins the argument for a large rate cut, the Financial Times’ editorial board argues in an op-ed, saying that with inflation down to 2.5% — moving toward the targeted 2% — a significant rate cut would help stave off economic stagnation and support employment. The board also argues that the persistent inflationary factors are lagging behind actual market prices, and that useful indicators like wage growth, are tame by comparison.

Market expectations tilted toward a larger cut over the weekend, buoyed by signals from former Fed officials — meaning the central bank has the opportunity to take bold action without spooking investors, the FT’s board writes.

Regardless of the outcome of this week’s meeting, the journey to the end of the rate-cutting cycle remains fraught with uncertainty, writes Egyptian-American economist — and EnterpriseAM HQ favorite — Mohamed El Erian in a separate editorial for FT. He points out that US economic growth has been more robust than many anticipated, but this growth has not been evenly distributed. Lower-income households, in particular, are feeling the strain as pandemic savings dwindle and credit card debt rises. El Erian highlights the risk of this economic weakness spreading beyond lower-income households, which could further complicate the Fed’s decision-making process.

Global impact of US monetary policy: As the Fed navigates its rate-cutting cycle, emerging markets may also feel pressure to follow suit, leading to potential disruptions in international financial stability. El Erian emphasizes that while markets are optimistic about a “soft landing” for the US economy, this confidence may not fully account for the complexities of global financial dynamics, particularly in the bond markets.

MARKETS THIS MORNING-

Asian markets are mixed as Hong Kong’s Hang Seng fell 0.76% on the back of disappointing economic data from China — though markets in mainland China, Japan, and South Korea were closed for national holidays. Meanwhile, Wall Street futures are hovering around the flatline as investors hold their breath for the upcoming Fed meeting.

THE CLOSING BELL-

The DFM rose 0.4% on Friday on turnover of AED 198.2 mn. The index is up 7.9% YTD.

In the green: International Financial Advisors (+11.6%), Al Ramz Corporation Investment and Development (+9.0%) and Ekttitab Holding Company (+2.8%).

In the red: Al Salam Sudan (-3.8%), Spinneys (-2.0%) and Emirates Central Cooling Systems Corporation (Empower) (-1.8%).

Over on the ADX, the index rose 0.5% on turnover of AED 5.4 bn. Meanwhile Nasdaq Dubai closed up 0.8%.