The possibility of an emergency rate cut by the Federal Reserve once exceeded 50%. Analysts: The situation is extremely rare and may trigger more panic

Concerns about a US economic recession or slowdown are triggering widespread caution among financial market participants, who fear something rare and high-threshold: an emergency rate cut by the Federal Reserve.

According to the Securities Times app, the last time the US central bank made such an adjustment was in March 2020, at the early stages of the COVID-19 outbreak, when the Fed cut the borrowing cost by 50 basis points to 1%-1.25% during an inter-meeting. However, the stock market still plummeted that day, leaving investors shocked rather than reassured, indicating that even if financial market participants get what they wish for, the outcome may be counterproductive.

In the Federal Reserve's over a century of history, emergency rate cuts are extremely rare. These instances include the period after the collapse of Lehman Brothers in 2008; during the subprime mortgage crisis, financial crisis, and subsequent economic recession in 2007-2008; after the September 11, 2001 terrorist attacks; and following the bursting of the dot-com bubble in 2001.

On Monday, negative sentiment was so strong that global financial markets were in turmoil, with significant stock market declines from Asia to Europe and then to the United States. It was reported that the derivatives market at one point believed the likelihood of an emergency rate cut in the coming week exceeded 50%. Renowned economist Jeremy Siegel called for a 75 basis point emergency rate cut by the Fed and another equal cut in September.

The July non-farm payroll report released last Friday showed that job creation in the economy was below expectations, with only 114,000 new jobs added and the unemployment rate rising slightly from 4.1% to 4.3%, sparking speculation about Fed action. Wall Street firms are starting to call for a more aggressive rate cut by the Fed than previously anticipated. Michael Feroli, an economist at Morgan Stanley, wrote in a report, "There is ample reason to act before September 18 or the Fed's next policy update."

On Monday, Asian markets were in a state of "widespread mourning." The Nikkei 225 index closed down 12.4%, marking the largest single-day decline since October 20, 1987, following the US stock market crash on "Black Monday."

Marc Chandler, Chief Market Strategist at New York's Bannockburn Global Forex, said, "In addition to its two mandates of price stability and full employment, the Fed has a third mandate, financial stability, but the threshold for an emergency rate cut is too high. I can't think of a time when they did something like this without some stability issue. Even as US stocks slide, our exchange rates are still relatively high this year. Considering the Fed needs to restore market confidence, an emergency rate cut aimed at calming the market could trigger more panic."

Just last Wednesday, Federal Reserve officials decided to keep rates unchanged between 5.25% and 5.5%. Chairman Powell stated that policymakers want to have more confidence in inflation before lowering rates, and a rate cut in September may be under discussion.

On Monday, all three major US stock indices closed lower, with the Dow Jones Industrial Average falling 1,033.99 points or 2.6%.

While the possibility of an emergency rate cut is increasing, Gina Bolvin, President of Boston's Bolvin Wealth Management Group, stated, "Investors should remember that the fundamentals have not changed much, and Friday's employment report is just one piece of data "However, the currency market is very important and may become a catalyst for Fed intervention."

Bolvin wrote in an email, "Investors need to take a deep breath, stock market corrections are normal, the unemployment rate is rising but still at historically low levels. The Fed can still hold the situation steady, but the difficulty is increasing."