As ECB to cut a second 25 basis points, the Fed is expected to move its policy rate at the next week FOMC meeting, reversing the hike process as inflation has meaningfully cooled down and is close to the Fed target range, and economic concerns are mounted.
I think the Fed is more likely to cut a 25 bps at this turning point. However it is clear to me the Fed has been behind the curve, consequentially from its another mis-characterization of inflation dynamics and data dependent strategy to conduct monetary policies. The approach often overly relies on data that has large delay and are of poor quality to indicate the economic realities.
For several times, the Bank of Canada has been ahead of the Fed in changing the direction of monetary policies, as if the Fed has been used Canada as a test case. The Bank of Canada lowered its benchmark interest rate for a third consecutive time, reducing its trend-setting policy rate to 4.25 per cent from 4.5 per cent. The latest decision also paves the way for additional rate cuts in the coming months.
With that, I think the Fed could suggest interest rate cuts continuously in its plan next week, and likely open door for deeper cuts at next few meetings and slowdown balance sheet reduction.