Fed meeting September 2024: Interest rates cut by 50 basis points

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.

Signs of more easing ahead

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.

What does this say about the economy?

Powell tried to project a very positive view of the economy in his press conference.

• He was clear that the Fed does not believe it's behind the curve in cutting rates, but we can interpret the 50 basis point cut as a sign that the Fed is committed to not falling behind the curve.
• He offered reassurances about the economy, saying the labor market is still very healthy and unemployment is low relative to history. But he also recognized that downside risks to employment have increased.
• When asked about the message that this decision sends to US consumers, Powell said the US economy is in a good place and the Fed is trying to keep it there. 
• Powell was asked about the stubbornness of housing inflation. He was thoughtful and said that the housing market is impacted by a number of unique factors, including structural imbalances. Because of that, he said it can take longer for housing inflation to come down, but he's confident it will normalize over time.

Not a ‘crisis cut’

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.