To The Moon

The US Federal Reserve (US Fed) has cut the target range for the federal funds rate by 50 basis points (bps), from 5.25 - 5.5% earlier to 4.75 - 5.00% on Wednesday, the first time since 2020. The cut comes amid concerns regarding the job market in the US, and ahead of the US presidential elections in November 2024.

Policymakers, according to reports, expect the Fed's benchmark to fall another half of a percentage point by 2024-end, and another one per cent in 2025.

After this move, analysts expect the US central bank to now go slow on its rate cutting trajectory, remain data dependent, and also watch the outcome of the US presidential polls on November 5.

U.S. futures jumped on Thursday. Dow Futures rose nearly 1%, Nasdaq 100 futures rose nearly 2%, S&P 500 futures rose more than 1%.

The large cut of 50 bps on Wednesday, they believe, seemed counterintuitive to the repeated claim that the economy was strong. The recalibration argument is clashing with the message this large cut sends.

Asian markets, meanwhile, reacted positively to the cut in interest rate by the US Fed with Nikkei 225, Hang Seng and the Shanghai Composite jumped on Thursday.

Here's how various parties have interpreted Fed's move.

Trump

Republican presidential nominee Donald Trump offered a downbeat take on the rate cut of half a percentage point, while also suggesting the Fed might be getting political ahead of November’s elections.

The former president said: “I guess it shows the economy is very bad to cut it by that much, assuming they’re not just playing politics. The economy would be very bad, or they’re playing politics — one or the other. But it was a big cut.”

Harris

Vice President Kamala Harris called the Fed's announcement "welcome news" for Americans who have struggled with high prices, but quickly turned to touting what she would do as president to tackle costs.

"I know prices are still too high for many middle class and working families, and my top priority as president will be to lower the costs of everyday needs like health care, housing, and groceries," said Harris in a statement.

Morgan Stanley $Morgan Stanley(MS)$

"A larger first move signals the Fed's commitment to staying ahead of the curve and their confidence in disinflation. We expect a series of 25bp cuts through mid-2025, with two more this year and four in 1H25."

Citigroup $Citigroup(C)$

This was a fairly hawkish 50 basis point cut, all-in-all the Fed is probably happy with that outcome, it wasn’t perceived as too much easing, but the negative aspect of that is the market is confused.

Goldman Sachs $Goldman Sachs(GS)$

Fed will cut 25 bps at each meeting until June next year. This marks a shift from their previous forecast of quarterly rate cuts starting in 2025.

JPMorgan $JPMorgan Chase(JPM)$

JPMorgan takes a victory lap on its (correct) forecast of a 50bp Fed cut, but adds:

“.. Only one vote has 75bp of easing for the coming two meetings, which suggests there is little support now for an additional 50bp cut in November. Our forecast for a 50bp ease in November will thus likely require data flow that reinforces Fed growth concerns.”

Wells Fargo $Wells Fargo(WFC)$

A 50 bps move came a bit faster than we were anticipating, but our overarching view that the FOMC will ease materially in the coming months has not changed.

BlackRock $BlackRock(BLK)$

"All that has happened is the Fed has jumped out to a faster start on the path to neural, an appropriate move given how far they are from their likely destination."

Jefferies $Jefferies Financial Group Inc.(JEF)$

Jefferies is surprised by the size of the US Fed rate cut. The decision to cut by 50 bps could be politically driven. Adds interest rate in US should be 3-3.5% by next year.

Barclays $Barclays PLC(FIYY)$

Fed will not see sharper rate cuts, commodities have already priced in the upcoming rate cuts well. Fed's decision was to recalibrate their stance with labour market conditions.

Nomura $numura

The meeting statement was also less dovish than we had expected. Forward guidance language indicated only a slight easing bias, referring to the considerations for “additional adjustments” to rates.

Evercore ISI $Evercore Partners(EVR)$

The big move out the gates takes out some insurance on the soft landing, is risk on, and should particularly benefit risky assets geared into the cycle, such as small caps, cyclicals, commodities and commodity currencies.

BMO Wealth Management

Wednesday's rate cut is “a welcome development” and should put the stock market on good footing going forward.