icon
icon
icon
icon
Upgrade
icon

Fed Delivers Expected 25 bps Cut, Market Reaction Muted

AInvestThursday, Nov 7, 2024 6:01 pm ET
3min read

The Federal Reserve announced a 25 basis point rate cut, a widely anticipated move that prompted minimal market reaction given only slight changes to its September 18 statement. In his press conference, Chair Jerome Powell highlighted the Fed’s confidence in the resilience of the U.S. economy, emphasizing that the current strength provides flexibility to proceed with gradual rate cuts. He noted that the central bank would continue monitoring economic data closely but sees little urgency in adjusting its approach quickly. Powell also skillfully navigated questions on fiscal policy, keeping the focus firmly on the Fed’s mandate and its data-driven approach. The Federal Reserve unanimously voted to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/2 to 4-3/4 percent, citing continued solid economic activity, easing labor market conditions, and elevated but progressing inflation toward its 2 percent objective. The Committee aims to achieve maximum employment and stable inflation in the long term, judging that risks to these goals are balanced but acknowledging an uncertain economic outlook. It remains committed to monitoring data on labor markets, inflation, and financial developments, and will adjust monetary policy as necessary. The Fed will also continue to reduce its holdings of Treasury and agency securities to support its dual mandate.

In his press conference, Federal Reserve Chair Jerome Powell provided insights into the Fed's current stance and future plans on rate adjustments, emphasizing a gradual approach toward achieving a neutral policy stance. He indicated that unless there is an unexpected economic shock, the Fed intends to move rates carefully toward neutral, avoiding abrupt changes. Powell underscored the importance of achieving a 2% inflation target and expressed that the Fed is committed to not undershooting this goal, as both high and low inflation can pose challenges to economic stability. He reassured that any decisions on further rate moves would depend on incoming data, particularly in the December meeting, where the Fed would assess whether rates need further recalibration.

Regarding inflation, Powell acknowledged that inflation has made significant progress toward the Fed's target, though core inflation remains elevated. He stated that current inflation expectations align with the Fed's 2% objective, and the Fed remains vigilant in preventing any drift in these expectations. Powell highlighted that the Fed is prepared to adjust policy if inflationary pressures rise unexpectedly, but he maintained optimism that inflation is on a sustainable downward path. The chair also noted that while inflation risks are balanced, the Fed's approach is cautious to avoid both moving too fast or too slow, thus minimizing potential risks of destabilizing the economy.

In terms of economic growth, Powell described the U.S. economy as strong and resilient, with the labor market cooling to a more sustainable level. He noted wage growth is now consistent with 2% inflation, reflecting a balanced labor market that is no longer a source of inflationary pressures. Powell reassured that the Fed aims to keep the labor market in this "good place" while continuing to work on inflation reduction. However, he acknowledged that the economic outlook remains challenging to forecast, especially in the near term, and that the Fed’s policy will remain flexible to adapt to any shifts in growth patterns or labor dynamics.

On fiscal policy, Powell was cautious and noted that while the Fed monitors any new fiscal policies for their potential economic impacts, adjustments to monetary policy based on fiscal changes take time and thorough analysis. He emphasized that while fiscal policy can have significant long-term effects, the Fed’s current path does not account for any speculative changes. Powell reiterated the Fed’s focus on its dual mandate—maximum employment and stable prices—and expressed confidence that the current policy stance is well-aligned to meet these goals.

When asked about the possibility of being dismissed by the President, Powell firmly stated that he would not resign if asked to leave, and noted that legally, a Fed Chair cannot be demoted by the President. His comments on this topic emphasized the Fed's independence in its decision-making process, signaling that the central bank remains committed to its mandate without political influence. Powell concluded by reaffirming the Fed’s dedication to maintaining economic stability and its cautious, data-driven approach to achieving its goals in an uncertain economic environment.

In closing, the Fed’s well-telegraphed rate cut maintained stability in the ongoing market rally, with no surprises to unsettle investors. The central bank reaffirmed its data-dependent approach, with Powell highlighting that two upcoming inflation reports and an additional jobs number will inform the Fed's December decision. These key economic indicators will be closely scrutinized by investors, likely sparking volatility around their release as the market anticipates the Fed’s next steps.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.