The Federal Reserve delivered its first rate cut in four years, and aggressively. The agency led by Jerome Powell decided to implement a “jumbo” rate cut of 50 basis points, to 4.75%-5%, in line with market forecasts, which gave a 64% probability of such a cut. In addition, the “dot plot”, in which Fed officials forecast their expectations for the coming months, commits to two more reductions this year, with two more reduction meetings scheduled by December.
The latest economic data and the sharp cooling of the labor market have pushed the Fed to implement a sharp reduction in the price of money, abandoning the caution associated with the soft landing proposed by the central bank itself and clearly encouraging the markets.
In the statement, the central bank explains that “the Committee is more confident that inflation is heading steadily towards 2%”, and considers that with this decrease, Risks to the labor market and inflation are balanced againOnly one of the 12 managers, Michelle Bowman, opted for a 25 basis point cut.
At the press conference that followed, Powell reiterated that the June forecast called for “one to two cuts” through the end of the year, expectations that were only devastated by this double cut. The Fed chairman explained that the good inflation data and the bad jobs data forced him to rethink the situation in favor of rate normalization.
Since Tuesday’s trading session, markets have remained stable and are waiting to hear the Fed’s decision before making any decisions. Finally, the “tense calm” has broken towards the green, with stock market increases that drove the Dow Jones and S&P 500 to new records historical.
Precisely, some analysts have pointed out that the Fed’s estimates regarding the next rate cuts are more important than the drop in silver prices achieved this Wednesday. This is the position of Tom Essaye, an expert at the Sevens Report, who points out that Market wants to see if Fed’s roadmap provides reasons to bolster hopes of a soft landing.
As things stand, the giant 50 basis point cut leaves little room for another such aggressive cut at future meetings, according to Peter Boockvar, an analyst at The Boock Report, who also points out that Wednesday’s Fed decision won’t silence the noise in the markets over the next few days.
