Federal Reserve Cuts Interest Rates, Signals Slower Pace of Easing
The US Federal Reserve has reduced interest rates, but signaled a slower pace of borrowing cost reductions in the future. The benchmark policy rate now stands at 4.25%-4.50%, with policymakers projecting only two quarter-percentage-point rate cuts by the end of 2025.
A Shift in Monetary Policy
Fed Chair Jerome Powell emphasized that it’s too early to assess the impact of President-elect Donald Trump’s proposed economic policies on the economy and Fed policies. Policymakers are seeking more progress on bringing inflation down before considering further rate cuts.
Market Reaction
The S&P 500 declined 1.5% following the news, while the yield on benchmark US 10-year notes rose to 4.49%. The dollar index extended its gain to 1.8%, and the euro fell to -1.19%.
Expert Insights
Michele Raneri, Head of US Research and Consulting at TransUnion, noted that the rate cut signals the Fed’s comfort with the impact of gradual interest rate cuts. Seema Shah, Chief Global Strategist at Principal Asset Management, described the decision as a “reluctant reduction” aimed at providing market comfort while preparing for a more hawkish approach in 2025.
A Hawkish Cut
Jack McIntyre, Portfolio Manager at Brandywine Global, characterized the rate cut as “hawkish,” citing stronger expected growth and higher anticipated inflation. Ellen Hazen, Chief Market Strategist at F.L.Putnam Investment Management, agreed, noting that the Fed has entered a new phase of monetary policy, marked by a pause in rate cuts.
Implications for the Economy
Gennadiy Goldberg, Head of US Rates Strategy at TD Securities, suggested that the Fed is signaling a shift towards fewer cuts next year, potentially leading to higher rates for longer. Peter Cardillo, Chief Market Economist at Spartan Capital Securities, noted that the market is turning south due to the reduced pace of rate cuts and uncertainty over inflation.
A New Era of Monetary Policy
Brian Jacobsen, Chief Economist at Annex Wealth Management, observed that the Fed is penciling in fewer rate cuts in 2025, citing a strong economy and above-target inflation. The Fed’s decision marks a significant shift in monetary policy, as it seeks to balance economic growth with inflation concerns.
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