Slashed.
The Federal Reserve lowered its benchmark interest rate by half of a percentage point this afternoon, starting the next phase of the policy cycle with a bang. Officials are squarely focused on a slowing U.S. labor market, with inflation still too high but closing in on the central bank’s 2% annual target.
The Federal Open Market Committee now has a new target range for the federal-funds rate of 4.75% to 5%, after holding rates steady since July 2023.
Market pricing was all over the place in the week before the meeting, with odds shifting between quarter- and half-point reductions. The bigger move is an effort to front-load cuts and get ahead of further weakening in the jobs market.
The median estimate in the latest so-called "dot plot" implies a fed-funds rate target range of 4.25% to 4.5% at the end of 2024. That’s a bit less easing than markets were anticipating, but it's significantly lower than the Fed’s previous forecast: In June, the median 2024 forecast was for a target range of 5.0% to 5.25%.
Interest-rate futures remain a bit ahead of that, pricing in the greatest odds of the target falling to 4.0% to 4.25% this year. That would require another 0.75 percentage point of cumulative cuts at the FOMC's November and December meetings.
Considering the stakes, markets had a relatively muted reaction to the news today. The S&P 500 and Nasdaq Composite each fell 0.3%, while the Dow Jones Industrial Average slipped by 0.2%. Bond yields rose slightly.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
