LIVE MARKETS-Powell is walking a tightrope with Fed rate cut, says Lazard's Ron Temple

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POWELL IS WALKING A TIGHTROPE WITH FED RATE CUT, SAYS LAZARD'S RON TEMPLE Federal Reserve Chair Jerome Powell is walking a tightrope in signaling that the U.S. central bank has not achieved its inflation target even as it administered its third consecutive interest cut, Lazard's Chief Market Strategist Ronald Temple told Reuters in an interview.

The Fed lowered its benchmark interest rate by 25 basis points to the 4.25%-4.50% range on Wednesday, in what many analysts christened a "hawkish cut" because officials indicated that fewer rate reductions were on the horizon in 2025 owing to inflation's trajectory.

Fed officials project that the personal consumption expenditures price index will be stuck at 2.5% through 2025, a little lower than this year's 2.8%, but significantly higher than the Fed's 2% target.

"I think the challenge Powell faced was desperately trying to balance messaging to the market and to people more broadly that the Fed is still not satisfied with where inflation is," Temple said.

"They've made a lot of progress reducing inflation. Core inflation has been cut in half, but it's still above 2%. It allows them the flexibility to cut rates. But they're not satisfied."

The benchmark S&P 500 .SPX, the Dow Jones Industrial Average .DJI and the Nasdaq .IXIC plunged on Wednesday, with the key indexes posting their biggest daily decline in months after the Fed's interest rate decision. All three indexes are trading higher on Thursday.

Temple believes that pull back in U.S. stocks was just a minor correction in an equity market that has had a strong run, adding that in the 18 months before the 2016 November general election, the S&P 500 was up 1%, but the index was up 42% before the 2024 election.

"There was excessive optimism about the outlook for profitability and economic growth in 2025. And I think what the Fed's announcement yesterday did was it took a bit of wind out of the sails from investors who were expecting too much in the year ahead," he said.

(Chibuike Oguh)

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