A 25 Basis Point Fed Rate Cut Could Instill Fear In Markets, Says Andrew Holland

Ahead of the US Federal Reserve's decision on interest rates, investors worldwide are anticipating a cut by 25 to 50 basis points.

According to Andrew Holland, chief executive officer of Avendus Capital Public Markets Alternate Strategies, a Fed rate cut of 25 basis points might instill fear in the markets. He hopes for a rate cut of 50 basis points.  

Analysts and market experts are keeping a close watch on the Federal Open Market Committee meeting slated for Sept. 17-18.

“For the Fed, it’s really about whether it’s 25 or 50 (basis points cut), and the narrative around what it’s saying about ongoing rate reductions. I hope it goes around 50 bps, and given the kind of interest rate cycle we are in, I think that’s what the markets would like as well," he told NDTV Profit.

Markets have moved past the fear of an impending recession in the next six months, according to Holland. A rate cut by 50 basis points is expected to push the markets higher, at least till the US elections, he added.

“If it’s (rate cut) 25 bps, it will again raise fear that is behind the curve. My view is that if it is going to be 50 bps, markets will push higher till the US elections, and if it’s 25 bps I think there’s probably more headwinds for the economy,” he said.

The Fed will announce its decision on Wednesday, and is expected to make a rate cut of at least 25 bps. This will be the first reduction in interest rates since 2020.

“I think the markets would feel calm about a 50 (bp cut) and front ending of the interest rate cycle. If you go back a few years, the market was worried about being behind the curve when they talked about the inflation being transitory and it wasn't,” he said.

Holland explained that even if an imminent Fed rate cut is the talk of the town now, markets are ignoring the next big event of the US elections.

“I think if it’s a (Kamala) Harris win, it’s probably going to be more positive to markets. If it’s former president Trump winning, we will only talk about tariffs and how high they will be,” Holland opined.

Trump’s election win could have a global impact, especially on countries like China, Japan and South Korea. This, according to the top executive, would slow down the US economy even more and affect all emerging markets, including India.

“India stands out in terms of markets because it’s not a big exporter but it would hurt growth and there are no two ways about it,” Holland said.