September is set to reveal two very important interest rate decisions for S&P/ASX 200 Index (ASX: XJO) investors.
On 24 September, the Reserve Bank of Australia (RBA) will make its next rate announcement.
With one eye on the recession needle, Treasurer Jim Chalmers is actively pushing for the RBA to cut rates from the current 4.35%. But RBA governor Michele Bullock has been pushing back expectations of early rate relief here in Australia until the inflation genie is more securely back in its bottle.
The other interest rate call ASX 200 investors are eagerly awaiting this month comes a week earlier, on 18 September (overnight Aussie time). That's when we'll learn whether the United States Federal Reserve opts to keep rates on hold at the current 5.25% to 5.50% range or begins easing.
Unlike the RBA, which is holding onto the option of raising interest rates, a rate hike in the US is almost certainly off the table.
In fact, analysts are almost united in expecting the Fed to cut rates this month. The million-dollar question is, will the world's most influential central bank cut by 0.25% or a more impactful 0.50%?
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Will ASX 200 investors enjoy an outsized Fed interest rate cut?
The debate on the size of the expected Fed rate cut global stock market and ASX 200 investors can expect this month heated up on Friday following the release of the latest US monthly jobs report.
According to the US Bureau of Labor Statistics, nonfarm payrolls increased by 142,000 in August while the unemployment rate dipped to 4.2%.
The new jobs numbers came in below consensus expectations, with a median forecast in a Bloomberg survey expecting 165,000.
But the data has left many analysts unsure of whether the Fed will cut by a conservative 0.25% or go bigger.
According to Sonu Varghese, a global macro strategist at Carson Group:
The labour market is clearly softening, and the Fed needs to step in to cut off tail risks. The report seals the deal for a September rate cut, but the big question really is whether the Fed goes big.
Bloomberg economists added:
The slight improvement in the unemployment rate suggests things have improved, but large downward revisions to July data and the disappointing NFP print, even when adjusted for the estimated overstatement, means jobs creation was probably flat in July, and barely positive in August.
Powell may not be able to convince other Fed officials to vote for a jumbo rate cut after this print.
Two days before the latest US jobs data, Atlanta Fed president Raphael Bostic threw cold water on the idea ASX 200 and global investors will see an outsized interest rate cut this month.
"History shouts to us that loosening monetary policy prematurely is a dangerous gambit that can rekindle inflation and entrench it in the economy for many months or even years," he said.
As for other top market experts, Goldman Sachs said (quoted by The Australian Financial Review):
We don't believe today's report is sufficiently weak to push the FOMC [Federal Open Market Committee] to a 50bp cut at the September meeting, and we have therefore left our forecast unchanged for a 25bp cut in September.
Wells Fargo's Sarah House, on the other hand, believes the door is still open for a 0.50% rate cut.
"We have been projecting a 50 bps rate cut at the September FOMC meeting for the past month, and for now we are leaving that forecast unchanged," she said.
Foolish takeaway
With all this focus on market moves and interest rates, it's worth noting that the ASX 200 has gained almost 11% over the past 12 months, despite the high rate environment.
