The Federal Reserve got aggressive on Wednesday, beginning its new easing cycle with a bang. The jumbo
50-basis point rate cut was nearly unanimous in an 11-1 vote, while a slim majority of policymakers (10 out of 19 officials) saw the need to lower rates by at least an extra half-point across meetings in November and December. It's all being geared towards a soft landing, with the eyes of the FOMC now trained on the labor market as inflation moves closer to its 2% target.
Quote: "We are committed to maintaining our economy's strength," Fed Chair Jerome Powell announced at a news conference. "This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained... To me, the logic of this - both from an economic standpoint and also from a risk management standpoint - was clear... You can take this as a sign of our commitment not to get behind."
While there was plenty of chatter going on before the decision, many thought the central bank would start off on a cautious note, as seen
in the most recent WSB poll. It also took the markets a while to digest the big cut and what that level might say about the economy. The S&P 500 (
SP500) initially rose toward all-time highs but ended the day subdued, only for futures to take off overnight and point to a bumper rally in the session ahead.
Helping clarify matters was the Fed's so-called "
dot plot" - contained within the Summary of Economic Projections. It projected a Fed funds rate that would hit 3.4% by the end of next year (from the current 4.75% to 5% range) and fell from the 4.1% estimate in June. Jay Powell and Co. are clearly
not taking any chances this time around after falling behind the curve in 2021 by forecasting a short-lived rise in inflation.
Bottom line: "Transitory" is no longer in the Fed dictionary. (
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