Wednesday, September 18th, 2024
Market activity was extremely stagnant ahead of the Fed’s big news today: an interest rate cut. When it came, market indexes shot out of a cannon, although by the end of Fed Chair Jerome Powell’s press conference, all major indexes had come back down to earth.
The Dow had been up 252 points earlier in the session, but finished -103 points, -0.25%. Similarly with the Nasdaq and S&P 500, which closed -0.31% and -0.29%, respectively. But the biggest move came from the small-cap Russell 2000: up +2.42% at the peak of the session, ending the trading day up a mere +0.04%.
Fed Moves 50 bps Lower to 4.75-5.00%
The Fed concluded its latest Federal Open Market Committee (FOMC) meeting today with a press release on monetary policy: a cut of 50 basis points (bps) to a Fed funds rate between 4.75-5.00%. This is the Fed’s first downward move in four-and-a-half-years, to the lowest interest rate levels since April of 2023.
Further, the Fed’s new dot-plot also indicates a Fed funds rate at 4.25-4.50% by year’s end, 100 bps lower than where we were earlier today. These could be by way of two 25 bps cuts in each of the final two meetings of 2024. Then the Fed expects rates to come down another 100 bps over the course of calendar 2025.
The only dissent this month came from Fed Governor Michelle Bowman, who voted for a 25 bps cut. The last time the Fed made a 50 bps move was back in December 2022, when the Fed brought rates back up to 4.25-4.50% — the same rate the Fed expects them to be by the end of this year.
Additional Fed Expectations
The Fed now expects the median 2024 Unemployment Rate to reach 4.4% by the end of the year. It also expects yearly inflation to dwindle from +2.6% last reported to +2.3%. Obviously that’s closer to the 2% optimal inflation rate than we were before, but the Fed seems to think it may take another 150 bps of cuts to get us fully there.
Notes from the Jerome Powell Press Conference
Fed Chair Powell stuck to his talking points for most of the question-answer period today, repeatedly citing the dual mandate of the Fed — curbing inflation and procuring a strong labor market. He also made quick mention that the Fed will also be slowing the reduction of securities on the books going forward.
Jobs are slowing down, but according to Powell — and history — unemployment remains low. At 4.2%, it’s the highest non-Covid-related unemployment we’ve seen since November of 2017, though historically we average closer to 6% unemployment than 4%.
Back in July, when Powell was asked about the likelihood of a 50 bps rate cut this time around, he said it’s “not something we’re thinking about.” Well, they started thinking about it at some point — probably when monthly non-farm payrolls came in lower for the second month in a row.
Markets Sink Post-Presser: Does Powell See Trouble Ahead?
That the move lower was 50 bps was bound to bring up questions among market participants: What’s the Fed afraid of? What does it know that the rest of us don’t?
We got an inkling of an answer to that when Powell suggested that if the Fed had seen employment data from the prior month, “it just may have” cut rates (25 bps) then. Thus, we may see the 50 bps cut as “catching up” to where the Fed felt it should have been by now.
But this still doesn’t completely excuse a dot-plot that seeks an additional 1.5% in rate cuts between now and a year from Christmas. This would indeed point to a level of concern beyond what Powell’s public-facing exterior allowed for at today’s press conference.
Questions or comments about this article and/or author? Click here>>
Wednesday, September 18th, 2024
Market activity was extremely stagnant ahead of the Fed’s big news today: an interest rate cut. When it came, market indexes shot out of a cannon, although by the end of Fed Chair Jerome Powell’s press conference, all major indexes had come back down to earth.
The Dow had been up 252 points earlier in the session, but finished -103 points, -0.25%. Similarly with the Nasdaq and S&P 500, which closed -0.31% and -0.29%, respectively. But the biggest move came from the small-cap Russell 2000: up +2.42% at the peak of the session, ending the trading day up a mere +0.04%.
Fed Moves 50 bps Lower to 4.75-5.00%
The Fed concluded its latest Federal Open Market Committee (FOMC) meeting today with a press release on monetary policy: a cut of 50 basis points (bps) to a Fed funds rate between 4.75-5.00%. This is the Fed’s first downward move in four-and-a-half-years, to the lowest interest rate levels since April of 2023.
Further, the Fed’s new dot-plot also indicates a Fed funds rate at 4.25-4.50% by year’s end, 100 bps lower than where we were earlier today. These could be by way of two 25 bps cuts in each of the final two meetings of 2024. Then the Fed expects rates to come down another 100 bps over the course of calendar 2025.
The only dissent this month came from Fed Governor Michelle Bowman, who voted for a 25 bps cut. The last time the Fed made a 50 bps move was back in December 2022, when the Fed brought rates back up to 4.25-4.50% — the same rate the Fed expects them to be by the end of this year.
Additional Fed Expectations
The Fed now expects the median 2024 Unemployment Rate to reach 4.4% by the end of the year. It also expects yearly inflation to dwindle from +2.6% last reported to +2.3%. Obviously that’s closer to the 2% optimal inflation rate than we were before, but the Fed seems to think it may take another 150 bps of cuts to get us fully there.
Notes from the Jerome Powell Press Conference
Fed Chair Powell stuck to his talking points for most of the question-answer period today, repeatedly citing the dual mandate of the Fed — curbing inflation and procuring a strong labor market. He also made quick mention that the Fed will also be slowing the reduction of securities on the books going forward.
Jobs are slowing down, but according to Powell — and history — unemployment remains low. At 4.2%, it’s the highest non-Covid-related unemployment we’ve seen since November of 2017, though historically we average closer to 6% unemployment than 4%.
Back in July, when Powell was asked about the likelihood of a 50 bps rate cut this time around, he said it’s “not something we’re thinking about.” Well, they started thinking about it at some point — probably when monthly non-farm payrolls came in lower for the second month in a row.
Markets Sink Post-Presser: Does Powell See Trouble Ahead?
That the move lower was 50 bps was bound to bring up questions among market participants: What’s the Fed afraid of? What does it know that the rest of us don’t?
We got an inkling of an answer to that when Powell suggested that if the Fed had seen employment data from the prior month, “it just may have” cut rates (25 bps) then. Thus, we may see the 50 bps cut as “catching up” to where the Fed felt it should have been by now.
But this still doesn’t completely excuse a dot-plot that seeks an additional 1.5% in rate cuts between now and a year from Christmas. This would indeed point to a level of concern beyond what Powell’s public-facing exterior allowed for at today’s press conference.
Questions or comments about this article and/or author? Click here>>