Author: Zac Martin, Investment Associate
After nine months of stale policy and murky economic reports, the Federal Reserve has resumed its rate cutting cycle. On Wednesday afternoon, the FOMC announced a 1/4 percent cut with all members but one in agreement. The only dissenting vote was from the new Fed Governor Miran, who was in favor of a 1/2 percent cut. This leaves the current policy at 4 to 4 1/4 percent.
The FOMC’s statements have provided additional insight as to the Fed’s view around the economy, stating that: “Recent indicators suggest that growth of economic activity moderated in the first half of the year.” Primarily highlighting a weaker labor market as job gains have slowed and the unemployment rate has edged up further. This possible downside risk to the employment side of the Fed’s dual mandate is the main driver for this meeting’s rate cut. While answering questions the Fed Chair, Jerome Powell, stated that this cut could be considered insurance given the economic moderation.
Despite a moderating economy, the committee is projecting some better than initially expected resiliency. Below is a table of the Summary of Economic Projections that were also released today:
These projections suggest the Fed is leaving the door open to two more rate cuts within 2025 as the unemployment rate continues to climb.
On the surface, markets appeared relatively agnostic to the Fed’s news as this decision was not unexpected. Traders had placed a near 100% probability of a rate cut announcement, leading up to this meeting.
However, volatility spiked following the FOMC’s release. Below is Wednesday's intra-day chart of the major US equity markets:
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