Experts: Deep rate cut sends wrong message to markets, economy

Economists have warned that a deeper rate cut by the Federal Reserve this month could rattle financial markets and send the wrong message about the risk of an impending recession.

This comes as policymakers at the U.S. central bank are widely expected to begin cutting interest rates when they meet on Sept. 17-18, with investors closely watching economic data for an indication of how much they are likely to cut.

Mazars chief economist George Lagarias told CNBC on Wednesday that while no one can guarantee the level of rate cuts the Fed will make at its next meeting, he strongly backs the camp calling for a quarter-point cut. “I don’t see a pressing need for a 50 basis point cut,” Lagarias said.

“A 50 basis point cut could send the wrong message to markets and the economy,” he added.

For his part, Atlanta Federal Reserve President Raphael Bousik indicated on Wednesday that the central bank is ready to begin cutting rates. His comments came ahead of Friday’s highly influential nonfarm payrolls report.

Strategists have traditionally said the most likely outcome of the Fed’s next meeting is a 25 basis point rate cut, though recent economic data appears to have strengthened the case for a bigger move.

Data released on Wednesday showed that U.S. job openings fell to a 3-1/2-year low in July, seen as another sign of labor market stagnation.