A financial writer and stock analyst now says the Federal Reserve will be forced to make an emergency rate cut before its next meeting in September to stem the widespread stock market sell-off in recent days.
Robert Prechter, founder and president of Elliott Wave International, spoke to Neil Cavuto on Fox Business Monday night and said the Fed missed a major opportunity at its meeting last week to get ahead of the market disaster that continues to unfold.
“I think there will be a surprise rate cut before the September meeting because I think interest rates will have started to fall faster then,” he said.
The last time the Fed made emergency rate cuts was during COVID. Many experts believe that this will not happen again, as it would signal that the US economy is in bad shape, potentially leading to even more panic in the market.
In January, Prechter warned that too much optimism in the market was dangerous. He said Monday that optimism is now “entrenched” and that the world is seeing “the most overgrown market ever.”
Robert Prechter, pictured, believes the Fed will make an unprecedented emergency rate cut to address market turbulence
After Friday’s jobs report, which showed unemployment rose to its highest level since October 2021 in July, global markets spiraled downward on fears the U.S. economy is sputtering.
Monday’s continued decline was led by Tokyo’s Nikkei 225 index, the world’s third-largest, which fell 12 percent this morning, the biggest one-day drop in nearly four decades.
The S&P 500 fell 3 percent for its worst day in nearly two years. The Dow Jones fell 1,033 points, or 2.6 percent, while the Nasdaq Composite fell 3.4 percent.
Bloomberg estimates that $6.4 trillion has been wiped off the value of global stock markets in the past three weeks.
According to Prechter, much of this could have been avoided if the Fed had decided to cut rates at last week’s meeting.
“The Federal Reserve had a great opportunity last Wednesday to cut the Fed Funds Rate by a quarter point, and they didn’t take it,” he said. “I think that was a big mistake.”
US job growth fell far short of expectations in July and the unemployment rate rose to its highest level in nearly three years
US Federal Reserve Chairman Jerome Powell left benchmark borrowing costs unchanged at their highest level in 23 years at his latest meeting.
Goldman Sachs economists estimate the chance of the US falling into a recession within a year at 15 percent to 25 percent. JPMorgan analysts estimate the chance at 50 percent.
The Fed has been raising rates since March 2022 to curb inflation, but a top economist believes the agency is suffering from tunnel vision.
Mohamed El-Erian, Allianz’s chief economic advisor, blamed the Fed for the current market situation, saying the rate hikes are hitting the economy hard.
“I really worry that we could lose American economic exceptionalism because of a policy mistake,” he said. Bloomberg TV.
Even if the Fed waits until September to cut rates, most analysts in the industry believe a rate cut is indeed coming.
Analysts at JP Morgan wrote in a memo that “because it appears the Fed is significantly behind, we expect a 50% rate” [basis point] at the September meeting the number was reduced, followed by another 50 [basis point] ‘cut in November.’
Investors are now also convinced that other major central banks will follow the Fed’s lead and cut rates even more aggressively. The European Central Bank is expected to cut rates by 67 basis points by Christmas.