(Reuters) – The Federal Reserve cut rates of interest by 1 / 4 of a percentage point on Thursday as policymakers took note of a job market that has “generally eased” while inflation continues to maneuver towards the U.S. central bank’s 2% goal.
“Economic activity has continued to expand at a solid pace,” the central bank’s rate-setting Federal Open Market Committee said at the tip of a two-day policy meeting by which officials lowered the benchmark overnight rate of interest to the 4.50%-4.75% range, as widely expected. The choice was unanimous.
BONDS: The yield on benchmark U.S. 10-year notes rose to 4.353%. The two-year note yield rose to 4.2347%
FOREX: The dollar index pared a loss to -0.54% with the euro up 0.48%.
“It was right on schedule, and it was key that they followed through with market expectations despite the outcomes of the election. Because in the event that they had walked back the expectation to chop, it might have been perceived as political. So what they principally asserted is that (1) they’re an apolitical organization they usually follow through as planned and (2) they’re fully cognizant of the dual-sided risk related to the labor market and continuing towards the neutral rate will alleviate any risks to the labor market unraveling.”
BEN VASKE, SENIOR INVESTMENT STRATEGIST, ORION PORTFOLIO SOLUTIONS, OMAHA, NEBRASKA
“As expected, the FOMC announced a 25-basis point cut today, marking a discount of their aggression relative to the September cut. Notably, long term rates have been on a steep upward trajectory for the reason that first cut, and have begun to say no post announcement today. With a backdrop of economic strength within the U.S., the trail forward will likely be more complex for the Fed than a gradual pace of cutting.”
ELLEN HAZEN, CHIEF MARKET STRATEGIST, F.L.PUTNAM INVESTMENT MANAGEMENT, WELLESLEY, MASSACHUSETTS
“So this was an enormous non-surprise result. You’ll be able to see that in each the 10-year and the S&P, each of them are just about exactly where they were. So the market was not surprised by this in any respect, but the important thing query, which is loads of the policies which were announced are very prone to be inflationary. And the inquiries to ask Powell on the press conference can be whether or not he and the committee will begin to look to policies quite than data in order that they don’t seem to be behind the curve, particularly on condition that ignoring fiscal policy back in 2021-2022 arguably allowed inflation to get unexpectedly high before they’d to step in. In the event that they had reacted to fiscal policy back then, inflation presumably would not have been as high. So it’s a really big query.
“Loads of commentary has been written about how being data dependent this cycle has led to being late. And sooner or later they’ll have to handle that and choose in the event that they still need to be data dependent and due to this fact run the chance of being late.”
UTO SHINOHARA, SENIOR INVESTMENT STRATEGIST, MESIROW, CHICAGO
“The U.S. dollar has pulled back from the gains it saw following the recent election, because the market’s focus shifted towards the looming Federal Reserve policy decision.
“As expected, the Federal Reserve lowered rates of interest by 25 basis points, a move that was widely anticipated by market participants.
“While the comments indicate that labor and inflation are ‘roughly in balance,’ noting that inflation ‘stays somewhat elevated’ indicates that the cutting cycle will proceed to be data-dependent.
“Fed Chair Powell is prone to communicate a ‘wait-and-see’ approach with one other key jobs report and inflation data coming before the following FOMC meeting. An analogous cautious tone wouldn’t be surprising regarding questions around longer-term policy changes and their impacts, given the freshness of the election results.”
MATTHIAS SCHEIBER, GLOBAL HEAD OF PORTFOLIO MANAGEMENT AT ALLSPRING GLOBAL INVESTMENTS SYSTEMATIC EDGE TEAM, LONDON
“The cut was widely expected based on recent inflation progress, and while economic data remain robust, it was broadly welcomed as an indication that the Federal Reserve is keen to bring inflation-adjusted yields down further. A Republican sweep seems very likely, and looser fiscal policy in addition to trade tariffs might lift not only growth but additionally inflation. Market expectations for a December rate cut have moved down.
“That said, the inflation rate has continued to enhance. This can likely result in a less aggressive rate-cutting cycle compared with what the market was expecting back in September when the Fed began its cuts. The important thing data points we’re monitoring concern the labor market – the important thing challenge for the U.S. economy moving forward.”
MICHELE RANERI, VICE PRESIDENT AND HEAD OF U.S. RESEARCH AND CONSULTING AT TRANSUNION IN CHICAGO (in an email)
“Today’s rate cut indicates that the Fed has continued to see positive signs with regards to inflation and the economy as an entire following its last rate cut. It’s anticipated that there can be subsequent cuts as we move into 2025. The hope is that it will proceed to stimulate consumer activity within the credit market, particularly when taking a look at credit products which were sluggish in recent quarters.
For instance, continued rate cuts could begin to drive down mortgage rates which have remained stubbornly high. This will help motivate more potential home buyers who’ve been holding off as a result of relatively high mortgage rates. It also could begin to stimulate the refinance market, specifically amongst those borrowers who’ve taken out a mortgage recently with the next rate of interest. Similar movement could also potentially be seen within the auto refinance market within the months to come back.”
MICHAEL ROSEN, MANAGING PARTNER AND CIO, ANGELES INVESTMENTS, SANTA MONICA, CA
“The Fed motion today, a 25-basis point cut within the Fed funds rate, was fully expected by the market. The Fed removed language on making progress on inflation, replacing it with the remark that inflation stays elevated. This cautionary note has caused Treasuries to sell-off a bit.
“The fact is that inflation stays above goal, the economy is humming above trend, and the Fed can have to moderate its easing program. The market is adjusting to this more measured pace of easing by pushing yields higher.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN
“In an action-packed week, the Fed didn’t add any drama. Cutting by 25 basis points still keeps the federal funds rate restrictive, but not as restrictive because it was. Although the Fed says the risks to its employment and inflation goals are roughly in balance, they probably must have italicized “roughly.” Elections have consequences and we could see a marginal improvement in growth relative to their forecasts, but additionally a marginal increase in inflation relative to their forecasts. That will call for a more gradual pace of rate reductions. They don’t have to backtrack on rate cuts, but they don’t have to hurry up with them either.”
RYAN DETRICK, CHIEF MARKET STRATEGIST, CARSON GROUP, OMAHA
“The Fed didn’t rock the boat it was widely assumed they might cut by 25 basis points, which they did. It was nice to see a unanimous decision.”
“The massive query now could be will they cut again in December? Our greatest guess is that they do, as inflation continues to enhance.”
“It’s nice that they’re recognizing some improvements within the U.S. economy. At the identical time there are risks to a potentially slowing labor market, which in our opinion, leaves the door wide open to a different cut in December at the following meeting.”
HELEN GIVEN, ASSOCIATE DIRECTOR OF TRADING, MONEX USA, WASHINGTON D.C.
“Overall, a really cautious decision that does not give us much to go on when waiting for December. Powell may give more concrete clues in his presser but I’m expecting we’ll hear about “data dependence” rather a lot.”
(Compiled by the Global Finance & Markets Breaking News team)