The Fed's 50 basis point cut seemed to cause markets both excitement and concern about the health of the US economy.
Fed Chair Jay Powell said all 19 Federal Open Market Committee participants believe multiple cuts are warranted this year.
Powell said the labor market is healthy and unemployment is low relative to history, but he recognized that downside risks to employment have increased.
The Federal Reserve (Fed) was more aggressive today than I expected. I anticipated only a 25-basis-point interest rate cut, and I still think that would have been more appropriate than the 50-basis-point cut the Federal Open Market Committee (FOMC) delivered today. But I’d rather have a cut, even if it’s overly aggressive, than no cut.
Immediately after it was announced, the Fed’s 50-basis-point cut seemed to cause markets both excitement and concern about the health of the US economy, with markets fluctuating on the news.
In the press conference, Fed Chair Jay Powell was asked about the FOMC experiencing its first dissent in nearly two decades when deciding on the size of today’s cut. He emphasized that there was a remarkable amount of agreement around the need for multiple cuts this year.
Powell said all 19 participants believe multiple cuts are warranted this year. Looks to me like markets can be very confident about more easing this year.
Powell tried to project a very positive view of the economy in his press conference.
Powell made it clear that today’s decision was not a crisis rate cut but instead a normalization of monetary policy from a very restrictive level. He stayed on point throughout the press conference, reiterating a positive view of the US economy and a desire to keep it that way. The term “recalibrating policy“ was reiterated multiple times. He stressed that the Fed is committed to a “good outcome.“
I anticipate risk assets could perform well in the coming weeks given the Fed’s reassurances — unless future economic data suggests greater weakening.
The Federal Reserve’s 25 basis point rate cut today wasn’t a surprise, but its new expectation to cut by 50 basis points next year (rather than 100) was.
A growing trend toward fiscal conservatism, the continued importance of monetary policy, increasing geopolitical risks, and technological innovation could drive global markets in the new year.
Deregulation and tax cuts could potentially provide a boost to US economic and market growth, while tariffs and immigration restrictions could pose challenges.
Important information
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This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
A basis point is one-hundredth of a percentage point.
The Federal Open Market Committee (FOMC) is a committee of the Federal Reserve Board that meets regularly to set monetary policy, including the interest rates that are charged to banks.
Inflation is the rate at which the general price level for goods and services is increasing.
Monetary easing refers to the lowering of interest rates and deposit ratios by central banks.
Risk assets are generally described as any financial security or instrument that carries risk and is likely to fluctuate in price.
The opinions referenced above are those of the author as of Sept. 18, 2024. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
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