Investing.com -- n a note Thursday, BCA Research analysts expressed growing skepticism about the U.S. economy's ability to avoid a recession, despite the Federal Reserve's recent 50-basis-point rate cut.
The cut, which exceeded expectations, marked the beginning of the Fed's easing cycle.
BCA analysts said that while the move was larger than expected, it was not clearly signaled in advance, which is uncommon for the Fed.
"Pre-blackout speeches didn't communicate a 50-bp cut," BCA pointed out. "A WSJ article, which led investors to price above 60% odds of 50-bps, merely struck the tone of an undecided Fed."
"Although former New York Fed President Dudley hinted at a 'strong case' of an outsized cut, he isn't ultimately an FOMC Committee member," added BCA. "
While Fed Chair Jerome Powell downplayed the idea of "front-loading" monetary easing at the press conference, calling the cut "timely" and aimed at ensuring the Fed stays ahead of economic challenges, BCA is less convinced.
The analysts highlighted that Powell did not appear concerned about the risk of price pressures reaccelerating due to aggressive cuts, which adds complexity to the Fed's strategy.
The Fed's dot plot was another critical point in the BCA note. They explained that the revised projections suggest further 25-basis-point cuts in November and December, followed by a more gradual pace of reductions in 2025.
While the Fed remains optimistic about a soft landing and maintaining labor market strength, BCA is more cautious. They believe the delayed effects of monetary tightening could still tip the economy into recession.
"At the current juncture, we remain less optimistic than the Fed that a recession can be averted," BCA remarked, adding that labor market conditions may deteriorate further before the benefits of the recent rate cuts are fully felt.