Asia left to wonder what’s spooking the Fed

Jerome Powell must be relieved about how the Federal Reserve’s first rate cut in more than four years went down with global investors. Markets took his bigger-than-expected 50 basis-point easing move very much in stride.

Had his team been less assertive, easing just 0.25 percentage points, the guesswork about the next move would have started immediately.

Here in Asia, though, economists can’t help but wonder what Fed officials know that global markets don’t. The Fed’s downshift to a range of 4.75%-5%, after all, was of a magnitude usually reserved for a recession or crisis.

“This ‘jumbo’ cut marks a step towards populist monetary policy by the Fed,” says economist David Roche, founder of Global Strategy. “It was wanted by the market, where, of course, the pain threshold is zero. It was dictated by the media. But it is not needed by the [US] economy, which is well-balanced.”

Roche wonders, though, “is the decision particularly intelligent as it places far too much emphasis on the Fed’s employment over inflation goals. It raises doubts about what the Fed knows about the labor market that we don’t. And it indicates that the Fed puts the equilibrium level of interest rates well below the level which the dynamism of the US economy justifies.”

Mark Zandi, chief economist at Moody’s Analytics, notes that Wednesday’s cut “feels overly aggressive, unless you know the economy is going to start to weaken more significantly.”

Economist Ryan Sweet at Oxford Economics wonders if the Fed is admitting, effectively, it should’ve eased sooner.

“The Fed,” he says, “doesn’t like to admit policy errors, but some of the decision for a larger cut in September is likely to get caught up as the central bank found itself behind the curve by one