The Federal Reserve lowered its benchmark interest rate by 50 basis points Wednesday. The vote for a 50 basis point cut was 11-1 with the only negative vote–for a 25 basis point cut rather than 50–the first dissent in the Jerome Powell era.
The Fed’s Dot Plot projection update showed a narrow majority, 10 of 19 Fed officials, favoring at least an additional half-point in rate cuts at Fed’s two remaining 2024 meetings.
The Federal Open Market Committee to lower the federal funds rate to a range of 4.75% to 5%, after holding it for more than a year at its highest level in two decades. It was the Fed’s first rate cut in more than four years.
“This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%,” Fed Chair Jerome Powell said in a press conference following the announcement.
Before the Fed meeting the financial markets had been divided over whether the central bank would cut by 25 or 50 basis points. And whether the Fed was behind the curve on its rate cuts–and thus in danger of seeing the economy tip into a recession without a 50 basis point cut–or whether given the uncertainty in the data and the worry over reigniting inflation a 25 basis point cut would signal that the Fed still believed that the economy was solid.
I don’t think today’s action by the Fed or the markets reaction really settles this debate. I certainly won’t put too much credence in today’s slight dip in stocks an evidence that investors think the 50 basis point cut shows the Fed is scared by what it sees in the data.
Today the Standard & Poor’s 500 slipped 0.29% and the Dow Jones Industrial Average fell 0.25%. The NASDAQ Composite was down 0.31% and the NASDAQ 100 dropped by 0.45%.
I think today’s modest slide is likely to be a sell on the news bit of profit taking by traders who had bet on a 50 basis point cut and sold today to close positions and take their gains. I’d certainly wait at least a few more days to get a more accurate read on investor reaction to today’s news.
One item to check in coming days: Even with today’s 50 basis point cut, the consensus in the Dot Plot forecast points to just another 50 basis points in cuts in 2024. That would bring the total move in 2024 to 100 basis points. That’s not as aggressive as interest rate cut bulls have been looking for.
So are they disappointed? We’ll know more in coming days as the market reaction shakes out.
