Legendary market watcher predicts surprise Fed rate cut

Financial analyst and author Robert Prechter reacts to massive market sell-off, says he believes the Federal Reserve will make an emergency cut ahead of its September meeting

Prominent financial analyst Robert Prechter says he believes the Federal Reserve will make the rare move of implementing an emergency rate cut ahead of its September meeting, reacting to markets reeling in a broad global selloff on Monday.

Prechter, the founder and president of Elliott Wave International and the author of "The Socionomic Theory of Finance," told FOX Business' "Cavuto: Coast to Coast" he expects the central bank to make the unorthodox move of a cut between meetings after missing its chance to do so at its official gathering last week.

Federal Reserve Chairman Jerome Powell

Federal Reserve Chair Jerome Powell speaks during a news conference on interest rates, the economy and monetary policy actions, at the Federal Reserve Building in Washington, DC, June 15, 2022.  (OLIVIER DOULIERY/AFP via Getty Images / Getty Images)

The market guru told warned Cavuto back in January about the dangers of extreme market optimism, and said Monday that optimism is now "entrenched" and we are seeing "the most overgrown market ever."

"The Federal Reserve had a wonderful opportunity last Wednesday to lower their Fed funds rate by a quarter point; they didn't take it," Prechter said. "I think that was a big mistake."

STOCKS TUMBLE AS DOW, S&P 500 CLOSE OUT WORST DAY SINCE 2022

He said central banks follow the free market interest rates with an average lag time of five months, and the Fed decided to do the usual lag time despite the fact that the three-month Treasury bill had gone from a 5.5% yield down to under 5.2%.

Federal Reserve building

Federal Reserve Board building on Constitution Avenue in Washington, D.C., March 19, 2019.  (Leah Millis/Reuters / Reuters)

"So they really had a big chance there to lower their Fed funds rate. They didn't take it," he reiterated. "I think there's gonna be a surprise rate cut before the September meeting because I think rates have started falling faster."

FED'S GOOLSBEE SAYS CENTRAL BANK WILL ‘FIX’ THE US ECONOMY IF IT DETERIORATES

Emergency rate cuts by the Fed are highly unusual. The last time the central bank made such a move was during the height of COVID, amid fears of a global economic collapse.

But Monday's massive selloffs triggered increased chatter over the possibility of an emergency cut, as markets tumbled.

GET FOX BUSINESS ON THE GO BY CLICKING HERE

Many economists argue a rate cut is highly unlikely as it would signal the U.S. and the global economy are in terrible shape — and it would also signal the Fed made a major miscalculation — which would further spook investors.

FOX Business' Suzanne O'Halloran contributed to this report.