Fed slashes rates by half point

As Paul Eitelman (and Rod Stewart and Sheryl Crow) say, “The first cut is the deepest.” Yesterday’s 50 bps rate cut fit that bill. We can’t yet say if it was too deep or too late, but one thing’s for sure — the market is paying attention. I asked Megan Roach, CFA what the rate cut means for stocks. Her expectation is a boost to real estate, consumer goods, banks, small caps. But if future cuts dovetail with a looming recession, she expects other sectors like utilities, staples, and healthcare to become the new safe havens. Hear more from Megan below:

What does the Fed's interest-rate cut mean for different areas of the economy and financial goals? Business Insider looked at how long it will take people to notice the rate cuts in their own lives as well as what effects the Fed's decision has on the housing market and more. "The universe of interest rates is one where the Federal Reserve's impacts vary, but the central bank helps set the tone even where there isn't a direct correlation," Mark Hamrick, senior economic analyst for Bankrate, said. Click the story below to read more.

I find myself ambivalent when assessing this week’s Federal Open Market Committee meeting. I disagree with the Fed’s choice of a larger cut of 50 basis points, but I agree with most of the underlying assessment of the economy that Fed Chairman Powell laid out. The latter, I believe, is going to prove key to what lies ahead for policy rates and market moves.   Powell repeated several times that the economy is strong, and so is the labor market. He cautioned that investors should not expect 50bps cuts to be the norm, and said the Fed aims to gradually bring its monetary stance to neutral. But how far are we from the neutral rate? I see the neutral fed funds rate at 3.75%-4.00%, in line with the pre-global financial crisis long-term average. The Fed has raised its estimate to about 3%, and the dots point to an end-2025 rate of 3.4%. Markets are pricing in fed funds at 2.75% by the end of next year. A number of investors still expect rates to revert to the extremely low post-global financial crisis levels—Powell said his sense is that they will not.   We should expect market volatility as investors will probably overreact to economic data, increasing the potential for subsequent disappointments. We're likely heading back to pre-GFC norms, but it won't be a smooth ride. #fed #interestrates #investmentstrategy #fixedincome

The Federal Reserve’s 2022-23 hiking cycle will be remembered for the highly unusual series of four consecutive 75 basis points interest rate increases. The cutting cycle initiated yesterday will be remembered for the highly unusual start of a 50 basis move. Both will be seen as indications of this central bank being late in its policy reactions. #economy #markets #centralbanks #federalreserve

Policy normalization kicks off with a 50bp cut In a highly anticipated decision, the FOMC voted to lower the federal funds rate by 50 basis points to a target range of 4.75%-5.00%, a larger-than-expected move and their first move lower since March 2020. In his press conference, Powell repeatedly described the move as a policy “recalibration”, suggesting the #Fed is proactively managing economic risks. Among the highlights: ➡️    Changes to the statement were largely expected: job gains have “slowed”, the Fed has “greater confidence that #inflation is moving sustainably towards 2%,” and risks to achieving its dual mandate are “roughly in balance”. Language on the economic backdrop did not change meaningfully: unemployment remains low, inflation somewhat elevated and the Fed is attentive to risks on both sides of its mandate. In a highly rare fashion, the statement included 1 dissent from Michelle Bowman, preferring a 25bps cut, the first dissent by a governor since 2005. ➡️     The dot plot showed little change in the totality of rate cuts expected to be delivered over the next few years, although the path was pulled forward. The median projection now shows another 50bps worth of cuts over the remaining two meetings of the year, followed by 100bps in 2025 and 50bps in 2026. This suggests the funds rate would reach “neutral” by end-2026. ➡️     Updated economic projections leaned dovish. Inflation projections were revised lower while unemployment for this year and next year nudged higher to 4.4% (+0.4% and +0.2%-pts respectively). Growth projections were largely unchanged. ➡️    In the press conference, Powell struck a cautiously upbeat tone on the economy, acknowledging the slowdown in labor market conditions but pointing to the broader set of indicators that still show stability. Interestingly, Powell suggested that the committee may well have cut rates in July if they had the July Jobs Report in hand, likely adding to the Fed’s resolve to normalize policy at this meeting. 💡 Clearly, policy normalization has now begun, more cuts are coming and despite a slightly larger cut to begin with, easing will still be gradual (barring a more material slowdown in the economy). Chair Powell reiterated confidence in economic conditions but with continued attention to labor market conditions. As we have communicated previously, we think it is a slippery slope to ease policy quickly at the risk of stoking recession fears. With a 50bp cut, Powell needed to convince markets that they are not worried about recession, and so far, they may have succeeded. Beyond immediate price action (which was choppy), this outcome of Fed rate cuts in the context of a soft landing should bode well for both stock and bond markets. Still, investors would do well to focus on enhancing quality and diversification in portfolios, as economic uncertainties loom and market concentration risks remain.

Fed cut day is here! The Federal Reserve cut policy rates by 0.50% at its September meeting, bringing the fed funds rate to a range of 4.75%-5.00% and ending their 14-month pause period. In my new macro minute, I take a deep dive into our top takeaways from this very exciting Fed meeting and what it means for investor portfolios. Here are my takeaways: - The new Summary of Economic Projections now estimates a year-end rate of around 4.4%, suggesting 0.50% more cuts by December. -Fed Chair Powell cautioned that we should not get used to them cutting in 0.50% increments. Today’s 0.50% cut was a “sign of [their] commitment to not get behind.” - Their pace of policy easing will be determined as much by employment and growth data as it is by inflation. - Fixed income markets have historically outperformed cash during rate cutting cycles. We believe that intermediate duration bonds can serve the important role of being a diversifier in an investor’s portfolio. Head over to the iShares.com insights hub to read about post-FOMC thoughts and how investors could position during a Fed cutting cycle. https://lnkd.in/dtrM9xtf

The #FederalReserve (Fed) issued a supersized interest rate cut today — 50 basis points — as well as a “dot plot” that indicates we can expect the Fed to cut by 50 basis points more in 2024. Here are my quick takeaways from the press conference and my thoughts on the market reaction.

Over the past several years, the Federal Reserve has been exclusively focused on bringing down inflation. It raised interest rates to the highest levels in a generation. With the job market softening, the central bank has begun taking its foot off the break, by cutting interest rates by one-half of one percent. Its benchmark is now between 4.75 and 5%. Going into the meeting, it was seen as a virtual toss-up whether it would be that, or a smaller reduction of one-quarter of 1%. But this is just the beginning if all goes as possibly envisioned. Chairman Jerome Powell and his colleagues are signaling that they plan to continue cutting rates between now and the end of the year and through 2025. They aren’t ready to declare mission accomplished in the war on inflation, and rates remain restrictive. Their legally prescribed job is to strive for maximum employment (a strong job market) and stable prices (or combating inflation). All of this matters whether you are taking out loans, have credit cards that you use, have savings, or invest (including for retirement). The Fed is hoping to keep economic growth going. And their forecast suggests they believe it will. If our central bankers need to do more, they have plenty of ammo available or room to cut further and more quickly. Here's more from my Bankrate colleagues on how the Fed's moves affect savings. https://lnkd.in/eRCrbjPM

Lower rates…at last “Time Has Come Today,” the epic (11-minute) 1968 psychedelic soul-rock classic by the Chambers Brothers, provides the perfect soundtrack for today’s decision by the Federal Reserve to end it’s historic rate tightening campaign. The Fed’s 50 basis points (bps) reduction in its target federal funds rate, to a range of 4.75% to 5.0%, comes roughly 2 1/2 years after the first rate hike of the cycle in March 2022 and is in line with market expectations leading up to today’s policy meeting. It’s also an aggressive first step in what will be a series of cuts during the remainder of this year and into 2025. For investors who’ve long been clamoring for lower rates, today’s move came not a moment too soon. In his post announcement press conference, Fed Chair Jerome Powell acknowledged the significant recalibration of monetary policy, but emphasized the Fed won’t be in a rush to reach a neutral rate stance, favoring a more measured approach. And for those tuned into the history of U.S. interest rates in 1960s music trivia, the federal funds rate when the Chambers Brothers released “Time Has Come Today” was 4.5%, according to macrotrends.net - just a touch below where it stands after today’s cut.

Going into today’s meeting, there was a consensus that the Fed would cut--but uncertainty about how much. The argument for cutting slowly was that economic growth is healthy, with real GDP on track to rise by between 2% and 3% in the third quarter. In addition, strong real wage gains, a surging stock market, falling mortgage rates and lower gasoline prices should all boost demand going forward. The argument for more aggressive action was that inflation has been falling and is now closing in on the Fed’s 2% target. Further, although the unemployment rate remains low, it has risen in recent months. For investors, this sharp pivot in monetary policy could make for more market volatility, underscoring the importance of diversifying and paying attention to valuations after a very strong run-up in both bonds and particularly stocks this year. #federalreserve #markets #economy