(Reuters) – The Federal Reserve cut interest rates by a quarter of a percentage point on Thursday after policymakers noted a labor market that has “broadly eased” while inflation continues to move toward the U.S. central bank’s target of 2 %.
“Economic activity has continued to grow at a robust pace,” the central bank’s rate-setting Federal Open Market Committee said at the end of a two-day policy meeting in which officials cut the overnight interest rate to the 4.50%-4.75% range. range, as generally expected. The decision was unanimous.
BONDS: The yield on US 10-year benchmark bonds rose to 4.353%. The yield on 2-year bonds rose to 4.2347%
FOREX: The dollar index pared losses to -0.54%, while the euro rose 0.48%.
“It was right on schedule and it was crucial that they met market expectations despite the election results. Because if they had reversed the expectation to make cuts, it would have been perceived as political. So what they were actually claiming is that (1) they are an apolitical organization and they are proceeding as planned and (2) they are fully aware of the two-sided risk associated with the labor market and that continuing the course towards neutral rate will reduce all risks. to the breakdown of the labor market.”
BEN VASKE, SENIOR INVESTMENT STRATEGIST, ORION PORTFOLIO SOLUTIONS, OMAHA, NEBRASKA
“As expected, the FOMC today announced a 25 basis point cut, which represents a reduction in their aggression from September’s cut. It is striking that longer-term interest rates have followed a steep upward trajectory since the first cut, and started to fall after the first cut. With a backdrop of economic strength in the US, the path forward will likely be more complex for the Fed than a steady pace of austerity.”
ELLEN HAZEN, PRINCIPAL MARKET STRATEGIST, FLPUTNAM INVESTMENT MANAGEMENT, WELLESLEY, MASSACHUSETTS
“So this was a big, not surprising result. You can see that both in the 10-year period and in the S&P, they are pretty much exactly where they were. So the market wasn’t surprised by this at all, but the main question that Powell will argue at the press conference is that many of the policies announced are very likely to be inflationary and are not behind the curve, especially given that ignoring fiscal policy in 2021-2022 has demonstrably caused inflation to rise unexpectedly. was high before they had to intervene. So it’s a very big question.
“Much commentary has been written about how data-dependent this cycle has led to lateness. And at some point they’re going to have to address that and decide whether they still want to be data-dependent and therefore risk leaving.”
UTO SHINOHARA, SENIOR INVESTMENT STRATEGIST, MESIROW, CHICAGO
“The US dollar has retreated from the gains it made after the recent elections, as the market’s focus shifted to the Federal Reserve’s looming policy decision.
“As expected, the Federal Reserve cut rates by 25 basis points, a move widely anticipated by market participants.
“While the comments indicate that labor and inflation are ‘roughly in balance,’ the comment that inflation ‘remains somewhat high’ suggests that the austerity cycle will remain data-dependent.
“Fed Chairman Powell is likely to announce a wait-and-see approach as another major jobs report and inflation data are due before the next FOMC meeting. A similarly cautious tone would not be surprising when it comes to questions about longer-term policy changes and their implications, given the freshness of the election results.”
MATTHIAS SCHEIBER, GLOBAL HEAD OF PORTFOLIO MANAGEMENT AT ALLSPRING GLOBAL INVESTMENTS SYSTEMATIC EDGE TEAM, LONDON
“The cut was widely expected based on recent inflation progress, and while economic data remains robust, it was widely welcomed as a sign that the Federal Reserve is keen to further cut inflation-adjusted rates. A Republican sweep seems very likely, and looser.” both fiscal policy and trade rates could stimulate not only growth but also inflation. Market expectations for an interest rate cut in December have been adjusted downwards.
“That said, inflation has continued to improve. This will likely lead to a less aggressive rate-cutting cycle compared to what the market expected in September, when the Fed began its rate cuts. The key data points we monitor concern the labor market – the most important challenge facing the US economy going forward.”
MICHELE RANERI, VICE PRESIDENT AND HEAD OF OUR RESEARCH AND CONSULTING AT TRANSUNION IN CHICAGO (in an email)
“Today’s rate cut indicates that the Fed continues to see positive signals when it comes to inflation and the economy as a whole after the last rate cut. Further cuts are expected to occur as we approach 2025. The hope is that this will continue to stimulate consumer activity in the credit market, especially when looking at credit products that have been sluggish in recent quarters.
For example, continued interest rate cuts could reduce mortgage rates, which have remained stubbornly high. This could help motivate more potential home buyers who have been waiting due to relatively high mortgage rates. It could also boost the refinancing market, especially among borrowers who recently took out mortgages with higher interest rates. A similar move could also be seen in the auto refinancing market in the coming months.”
MICHAEL ROSEN, MANAGING PARTNER AND CIO, ANGELES INVESTMENTS, SANTA MONICA, CA
“Today’s action by the Fed, a 25 basis point cut in the Fed Funds rate, was fully expected by the market. The Fed has removed language about making progress on inflation and replaced it with the observation that inflation remains high. This warning has led to Government bonds going on a bit of a sell-off.
“The reality is that inflation remains above target, the economy is running above trend and the Fed will have to moderate its easing program. The market is adapting to this more measured pace of easing by pushing rates higher.”
BRIAN JACOBSEN, CHIEF ECONOMIST, WEALTH MANAGEMENT ANNEX, MENOMONEE FALLS, WISCONSIN
“In an action-packed week, the Fed hasn’t added any drama. A 25 basis point cut still keeps the Fed funds rate restrictive, but not as restrictive as before. Although the Fed says the risks to its goals at the employment and inflation are roughly in balance, they probably should have italicized ‘roughly’. Elections have consequences and we could see a marginal improvement in growth compared to their forecasts, but also a marginal increase in inflation. compared to their forecasts. That would require a more gradual pace of rate cuts, but they don’t need to be in a hurry to do that.”
RYAN DETRICK, PRINCIPAL MARKET STRATEGIST, CARSON GROUP, OMAHA
“The Fed hasn’t turned things upside down; it was widely expected that they would cut rates by 25 basis points, which they did. It was nice to see that the decision was made unanimously.”
“The big question now is: will they start cutting again in December? Our best guess is that this is the case as inflation continues to improve.”
“It’s nice that they’re recognizing some of the improvements in the U.S. economy. At the same time, there are risks of a possible slowing labor market, which in our view leaves the door wide open for another cut in December at the next meeting.”
HELEN GIVEN, ASSOCIATE DIRECTOR, TRADING, MONEX USA, WASHINGTON DC
“All in all, a very cautious decision that does not give us much guidance as we look ahead to December. Powell may provide more concrete guidance in his press release, but I expect we’ll hear a lot about ‘data dependency’.”
(Compiled by the Global Finance & Markets Breaking News team)
