- US central bank kicks off easing cycle with a half-point cut
- Fed’s dot plot shows another 50 basis points of easing in 2024
Fed officials’ so-called dot plot, detailing officials’ projections for the path of monetary policy in the months ahead, showed a further 50 basis points of easing slated for this year. Yet markets now suggest the Fed will cut at least another 72 basis points. In the immediate aftermath, short-end Treasuries rose, the S&P 500 Index held gains and a Bloomberg gauge of the dollar slumped.
The move brings to an end weeks of speculation about whether the Fed would kick start its easing cycle with a quarter- or half-point cut. Traders were pricing a roughly even chance of each outcome in the immediate run-up to the decision.
“This is not just a 50 basis point cut, this is a dovish 50 basis point cut,” said Mohamed El-Erian, Bloomberg Opinion columnist and president of Queens’ College, University of Cambridge, on Bloomberg Television. “My question is what has changed since July, when they decided not to cut rates, and now there’s this very aggressive cut and aggressive signaling.
Here’s what others on Wall Street are saying:
Steve Sosnick, chief strategist at Interactive Brokers LLC:
“Stock markets got what they wanted, at least for now. I find it interesting that ‘balance of risks’ is used twice in the third paragraph, so we might want to find out more about the relative balance is, but the statement certainly is dovish as a whole. Now the question is how much of this has been priced in by a market that was already up for seven straight days prior.”
Helen Given, a foreign-exchange trader at Monex Inc.:
“The yen is obviously a big winner in all this as interest differential is now materially smaller. The dot plot is the bigger story. The Fed still sees less easing this year than traders do, which is why we saw that initial fall in the dollar pared back”
Dave Mazza, CEO at Roundhill Investments:
“The FOMC delivered a 50bps rate cut, which is in line with recent expectations. This cut acknowledges the Fed’s concerns about the employment picture, which should bode well for risk sentiment in the short term. While this action is decidedly dovish, investors will be hanging on Powell’s words in the press conference to gauge the extent of this dovishness, especially considering the inflation picture has improved, but is far from mission accomplished.”
Kevin Gordon, senior investment strategist at Charles Schwab & Co.:
“The most important part is the change in the statement to show how much the labor market is now in focus. It’s clear that Fed members see larger downside risk when it comes to payroll growth, but they also know they have a lot of room to dial back the restrictiveness.”
