Fed Cuts Rates: Labor Market Focused Pivot
The Federal Reserve has decreased interest rates by 50 basis points, marking their first rate cut since March 2020.
The long-anticipated Fed pivot has officially begun. By initiating their monetary policy easing cycle with a substantial 50 basis point reduction, it appears the FED has chosen to prioritize the labor market aspect of their dual mandate over inflation.
Here’s a summary of the FED's decision:
1. The Fed cuts interest rates by 50 bps for the first time since 2020.
2. The Fed anticipates two additional 25 basis point cuts in 2024.
3. Fed Governor Miki Bowman dissented, advocating for a smaller 25 bps cut, marking the first governor dissent since 2005.
4. The Fed has gained "greater confidence" that inflation is trending towards 2%.
5. The Fed will "carefully assess incoming data" and adjust their outlook as necessary.
6. The Fed projects 100 bps of rate cuts in 2025 and another 50 bps in 2026.
This represents a clear pivot by the Fed, indicating that they believe the disinflation trend is still active, while also recognizing the need to prioritize unemployment as the labor market has weakened.
All eyes are on macro indicators 👀. Increases in unemployment (highlighted in circles) that preceded recessions (indicated by grey areas) are marked in the chart.
Is unemployment on the rise?
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