US Begins $50B Treasury Buyback, 50 Bps Fed Rate Cut Looms

On Tuesday, August 6, 2024, the United States kicked off the ambitious Treasury buyback program. This initiative aims at purchasing $50 billion worth of Treasury securities by the end of October. Moreover, it comes at a crucial juncture as the U.S. Federal Reserve is expected to announce an emergency interest rate cut soon.

U.S. Treasury Buyback Plan

The program will start with an $8.5 billion buyback in August, according to the latest tentative schedule. Moreover, it will be followed by a whopping $31.5 billion worth of Treasury buyback in September. Thereafter, the U.S. government will initiate a $10 billion buyback in October. This move aims to manage the supply of government bonds in the market and support liquidity.

In parallel, market speculation is rife about a potential emergency rate cut by the U.S. Fed. Wharton’s Professor Jeremy Siegel has been vocal about his expectations for a significant rate cut. Siegel called for a 75 basis point emergency cut, followed by another 75 basis point cut in September, according to an interview with CNBC.

“Absolutely, and this may surprise you, I’m calling for a 75 basis point emergency cut in the Fed funds rate with another 75 basis point cut indicated for next month at the September meeting, and that’s minimum,” Siegel stated. Furthermore, he elaborated that the current Fed funds rate should be between 3.5% and 4% based on the recent economic data.

In addition, Siegel criticized the Federal Reserve for its inaction despite significant improvements in inflation and employment rates. “We’ve gone down 90% towards the target on the inflation rate. We’ve overshot the target on the employment. Those are the two targets explicitly mentioned by the Federal Reserve,” he argued.

Adding to the chorus, Robert Prechter, a prominent financial analyst and president of Elliott Wave International, also predicts an emergency rate cut. Prechter that he expects the Federal Reserve to act before its scheduled September meeting due to the recent market turmoil.

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Probability For 50 Bps Cut Soars

“I think there’s gonna be a surprise rate cut before the September meeting because I think rates have started falling faster,” Prechter said, according to a FOX Business report. Additionally, he pointed out the last time the U.S. Fed made such a move during the height of Covid-19, in response to fears of a global economic collapse. This historical precedent sets the stage for a rate cut in current times.

However, not all economists share this optimism. Many argue that an emergency rate cut would signal that the U.S. and global economy are in dire straits. It could potentially lead to further further market crash, according to comments by experts like Peter Schiff and Scott Melker.

Despite this, the CME FedWatch Tool indicates a 74.5% probability of a 50 basis point rate cut in the September meeting. Whilst, the probability for a 25 basis point cut stands at 25.5%. Market reactions to these speculations have been mixed. Polymarket, a betting website, showed 55% odds of an emergency rate cut yesterday amid rumors of a potential emergency Fed meeting. However, these odds have since slipped to 18% due to the absence of an official announcement.

The Treasury buyback program is seen as a complementary measure to the potential rate cuts. It aims at stabilizing the financial markets. By reducing the supply of Treasuries, the government hopes to support bond prices and keep yields in check. This can indirectly support broader economic stability amid recession concerns. Amid these developments, the crypto market has already marked a recovery, offering a sigh of relief after Black Monday.

Also Read: Chicago Fed President Signals Emergency Rate Cut, Slashes Recession Concerns