A 50 basis point rate cut = signaling panic? A significant rate cut by the Federal Reserve this month could be "very dangerous"?

The latest two employment data releases are conflicting, adding uncertainty to the extent of the Fed's rate cut in September.

According to the CME Group's FedWatch tool, traders currently estimate a 59% probability of a 25 basis point rate cut in September, with 41% expecting a 50 basis point cut.

However, George Lagarias, Chief Economist at Forvis Mazars, stated that if the Fed aggressively cuts rates by 50 basis points this month, it could spook the financial markets and send out a wrong message about the imminent risk of an economic recession.

With the August non-farm payroll data set to be released soon, the market is eagerly awaiting economic data to seek clues about the extent of the rate cut.

"Economic slowdown is happening, but I believe we are far from a recession"

Data shows that the August ADP employment figure in the US hit the lowest level since October 2023, while the initial jobless claims data for the week ending August 31 dropped to the lowest level since early July.

Amid the mixed signals in the US economy, George Lagarias firmly stands in the camp advocating for a 25 basis point rate cut, believing that the current economic conditions do not warrant a 50 basis point cut. He stated:

"If the Fed significantly cuts rates by 50 basis points, it could send a wrong signal to the market and economic participants, leading them to mistakenly believe that the economic situation is very dire, triggering panic. This could be a self-fulfilling prophecy, causing an actual economic downturn."

Lagarias said, "There is no doubt that an economic slowdown is happening, but I believe we are far from a recession. The job market is declining, some of which is related to increased supply rather than decreased demand."

Last night, US job openings in July fell to the lowest level in three and a half years, seen as another sign of weakness in the labor market. Lagarias commented:

"There are indeed some issues in the current economy, such as decreasing job openings and a sluggish manufacturing sector. However, this slowdown was anticipated earlier and is not a sudden occurrence. Moreover, although the economy is not very robust, it has not reached the level of an economic recession."

Lagarias is not the only one warning the Fed against a 50 basis point rate cut this month. Previously, Mohit Kumar, Chief Financial Economist at Jefferies Europe, also stated that the Fed has "absolutely no need" to cut rates by 50 basis points at the September meeting