The U.S. Federal Reserve's decision to cut interest rates by 50 basis points comes at the right time to boost market confidence, but further action is needed to avoid a recession, according to Liu Zhiqin, a senior fellow at the Chongyang Institute for Financial Studies at the Renmin University of China.
In an interview with China Global Television Network (CGTN), Liu highlighted that the Fed had not implemented a rate cut since March 2020, and that the global market has waited patiently ever since.
"I think the timing is very important for the Fed decision as we know the four years is not a short time, because the global market has enough patience to wait till this time point. As we see that the economic recovery in the United States is still uncertain. That's why, I think, the Fed is considering more driving forces, especially in the monetary policy to have more positive policies that to support economic recovery," he said.
“This is a very important time point. As I understand now, the American economy is coming to a crossroad. To the left, there will be lower inflation, to the right, the inflation will still remain, could be high, including unemployment. So, [at] this crossroad, [the Fed] made the decision that probably benefits the economic recovery. So, we see that timing is right and a little bit too late, but still good enough that the necessity for such an interest cut that will [create] more confidence for the market," the economist added.
Liu also emphasized that the size of the cut is appropriate considering the extent of the waiting period.
"50 basis points is quite reasonable. 25, after four years of waiting, I think it's too small a step for the market. So I think the Fed made the right decision. The 50 basis points of the interest cut is to meet the demands of the market. Because if two years before we made such a decision, 25 basis points [would have been] good enough. But nowadays fifty [basis points] is still available for a new interest cut in the future. So I think the fifty [basis points] is good enough," he said.
Though optimistic about the cut's potential impact on the global economy, the expert warned that it might not be enough to prevent a U.S. recession.
"There's no actual right policies to prevent any possible recession because we need a lot of other additional jobs and policies. Not only the interest cut, the interest cut is only one important thing that to counter the inflation or unemployment in order to lower the borrowing cost for the market, give more confidence to their buyers and the consumers. But if we want to prevent any recession, we need more industrial policies to support manufacturing, the real economy and other sides. This is a very important policy to have more efficiency, the whole picture will be improved, because the market needs more policies to support to have more confidence at the moment. The confidence shortage is the major barrier for the United States, also for the global market. So this move has really improved expectations of the market that the economy will be much better to recovery than people thought," Liu said.
U.S. Fed's rate cut may boost market, but further action needed: expert
