After the Federal Reserve announced its decision to cut interest rates by 50 basis points, the most discussed issue in the market was when the next interest rate cut would take place.
The median of the Fed's dot plot shows that the Fed will cut interest rates by a total of 100 basis points in 2024. After the 50 basis point cut in September, there is an expectation of another 50 basis point cut. The Fed is expected to cut interest rates by another 100 basis points in 2025, the same as the rate cut expected in the June dot plot.
U.S. interest rate futures suggest that a cumulative rate cut of 76 basis points will be achieved by the end of 2024, and a cumulative rate cut of 196 basis points will be achieved by October 2025.
U.S. Senator Elizabeth Warren criticized Powell (who has repeatedly criticized Powell for raising interest rates too quickly and being too lax with bank regulations): "This rate cut once again shows that Powell acted too late to lower interest rates. The Fed has finally changed its policy direction and started to follow its dual mandate of prices and employment. Lower interest rates mean relief for consumers and aspiring homeowners. Further rate cuts are needed."
CME's "Fed Watch" said that the probability of the Fed cutting interest rates by 25 basis points by November is 62.2%, and the probability of cutting interest rates by 50 basis points is 37.8%. The probability of a cumulative rate cut of 50 basis points by December is 36.6%, the probability of a cumulative rate cut of 75 basis points is 47.8%, and the probability of a cumulative rate cut of 100 basis points is 15.6%.
"New Bond King" Gundlach said that the long-term bond market does not want the Federal Reserve to adopt radical easing policies; the Federal Reserve is not lagging behind the situation as before; after the U.S. election, the Fed is more likely to cut interest rates by 50 basis points in November; currently The data supports Powell's comments that the economy is not showing significant stress.
Tom Hainlin, senior investment strategist at Bank of America, said that the Fed's rate cuts are aimed at protecting jobs, and two rate cuts are expected in the future. We have no particular view on whether the rate cut will be 25 basis points or 50 basis points. So we won't say that we will definitely be surprised. Looking ahead, at least from now to the end of the year, two more rate cuts should be expected. As inflation begins to get closer and closer to the target, it is not surprising that Powell focuses on the mission of employment, and he is worried about potential downside risks in the labor market.
There are some signs that the labor market may be a little bit weaker than the data suggests. So this looks to us like an insurance measure relative to the labor market to prevent unemployment from rising and to keep the economy running well.
