Wellington-Altus Private Wealth chief market strategist Jim Thorne argues that the Fed has been slow to cut interest rates and the private sector is down on ‘Making Money.’
The Federal Reserve on Wednesday it announced a long-awaited interest rate cut, lowering rates by 50 basis points from a 23-year high as the central bank cut borrowing costs after progress in the fight against inflation.
The Fed’s first interest rate cut since March 2020 lowers the federal funds rate from 4.75% to 5%.
The interest rate was at 5.25% to 5.5% from July 2023, the highest level since 2001, as the central bank monitored economic data for signs that inflation It was stubbornly heading towards its 2% target.
Recent months have given signs of progress that inflation is moving towards the Fed’s target, although the latest data has shown that they are not yet there. The price fell to 2.5% year-on-year in August, down from 2.9% last month and below the peak of this cycle of 9.1% in June 2022.
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Fed Chairman Jerome Powell announced the central bank’s move to lower interest rates for the first time in four years. (Roberto Schmidt/AFP via / Getty Images)
Federal Reserve Chairman Jerome Powell he said at a press conference after the announcement that the central bank is focused on “achieving our twin goals of high employment and stable prices for the benefit of the American people.”
“Our economy is strong overall and has made significant progress toward our goals over the past two years,” Powell said. “This decision reflects our growing confidence that with the right change in our policy stance, the strength of the labor market can be maintained in favor of moderate growth and inflation falling to 2% .
“I would say, we don’t think we’re behind. We think this is timely, but I think you can take this as a sign of our commitment not to go backwards,” Powell said of the decision. to go with a 50-basis-point cut.
INVESTMENT INCREASED 2.5% IN AUGUST, LOWER THAN EXPECTED
The chairman stressed that the Fed will make decisions on a meeting-by-meeting basis going forward based on economic data and said, “We can go fast if we have to, we can go slow if we have to, we can stop if we have to.” appropriate. That’s what we think.”
He was also asked about the political implications of cutting interest rates with Election Day less than two months away. Powell said Fed policymakers are looking at how to “support the economy for the benefit of the American people” and noted that the Fed’s actions often affect the economy by slowing down after policy changes.
“I don’t see anything in the economy right now that suggests that the likelihood of … a recession is high,” Powell said when asked if the economy was at risk of a recession. “I don’t see that. You’re seeing growth at a solid rate, you’re seeing inflation coming down, and you’re seeing the labor market still in very solid shape.”
Powell said the Fed is hopeful economic growth will slow inflation. (Mandel Ngan/AFP via Getty Images/Getty Images)
Powell previously indicated that the central bank did not intend to wait for inflation to reach 2% to cut interest rates.
He explained in July that “if you wait until inflation drops to 2%, you are probably waiting too long, because the tightening that you do, or the level of pressure that you have, still has effects that will probably drive inflation below 2%.
A to reduce hiring raised concerns about the labor market and a possible economic slowdown, leading to speculation that the Fed may choose to cut interest rates by 50 basis points.
FED’S ACTIONS OPEN TO MORE WORDS TO MARKET IN FREE FIGHT AND PRICES, SURVEYS FIND.
The central bank typically prefers to keep the rate low at 25-basis-point at the start of a rate-cutting cycle, although it has made larger cuts when there is a high level of economic uncertainty.
It recently chose to cut 50 basis points in March 2020 when the COVID-19 pandemic began, as well as in September 2007 during the housing crisis and in January 2001 when the dot-com bubble burst.
The Federal Reserve has signaled that policymakers will not wait for inflation to reach 2% before cutting interest rates. (via Ting Shen/Bloomberg/Getty Images)
Markets have fully priced in a 25 basis point rate cut ahead of the Fed’s decision on Wednesday, although traders were still expecting the Fed to cut rates by 50 basis points before the announcement.
According to the CME FedWatch tool, the probability of a 50 basis point cut has risen from 25% last month to 64% the day before the Fed’s decision.
Wednesday’s rate cut decision is expected to be the first in a series of interest rate cuts. Ahead of the Fed’s announcement, markets expected the Fed to announce more rate cuts at its meetings in the coming months, as the CME FedWatch tool sees more than 50% rate cuts from 4.5% to to 4.75%. November.
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“The markets got what they wanted – the first big cut by the Fed,” said Chris Larkin, director of trading and investment at E*TRADE from Morgan Stanley. “In addition to how hot or cold the economy is, that may depend a lot on what the Fed says about how fast and how far it sees rates falling.”
Stocks reacted positively to the Fed’s rate cut decision, with the Dow Jones Industrial Average and the S&P 500 rising the most immediately after the announcement before Powell’s press conference.
The next Federal Reserve policy meeting will be held Nov. 6-7, right after Election Day on Nov. 5, while the annual meeting will be held on Dec. 17-18.
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