Fed cuts rates by 50bp. What’s next?
Summary:
The FOMC cuts rates by 50 basis points, bringing the federal funds rate to a range of 4.75% to 5%.
The latest Fed Dot Plot suggests there will be another 2 cuts (50bp) by 2024, followed by 4 more cuts (100bp) in 2025.
However, traders are expecting more cuts (3 additional cuts by 2024, followed by 6 more in 2025), according to CME FedWatch.
Conclusion:
The Fed’s significant rate cut of 50bp shows its determination to stay ahead of the curve and prevent a hard landing.
Market participants now believe the U.S. economy is headed for a soft landing at worst.
While it looks like stocks are poised to rally, there’s a possibility that investors have already priced in much of the anticipated 2024 and 2025 rate cuts.
Investors should be cautious of the election uncertainties that may weigh on the equity markets in September and October.
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