In a recent discussion, Morgane Delledonne, head of investment strategy at Global X ETFs, shed light on the Federal Reserve’s interest rate policy and its effect on the markets.
What Happened: Delledonne, in an interview with CNBC on Monday, highlighted the gap between the Federal Reserve’s goals and the expectations of the market.
“What the Fed wants and what the market wants are two different things,” she explained.
She pointed out that the Federal Reserve heavily depends on economic data, which currently suggests a robust economy despite some weakening in the job market. However, Delledonne emphasized that core inflation continues to remain high.
Delledonne opined that the Fed is unlikely to risk the downward inflation trend by being overly aggressive.
“I don’t see the balance of risks pointing to a 50 basis points cut,” she said. She also suggested that such a move by the Fed could signal to the market that a recession risk is imminent.
Why It Matters: The Federal Reserve’s interest rate policy significantly influences the financial markets. The Federal Reserve was set to cut the federal funds rate for the first time in over four years. The market participants were leaning towards a larger 50-basis-point cut, with a 65% probability.
Furthermore, the performance of the S&P 500 following the Federal Reserve’s rate cuts largely depends on whether the economy is in a recession or not. The stock markets typically experienced significant declines after the Fed’s initial rate cut during recessionary periods.
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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.
Illustration created using artificial intelligence via MidJourney.
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