Traders increased bets on further easing from the Federal Reserve after the central bank cut interest rates by 50 basis points for the first time in four years. “This is not just a 50 basis point cut, this is a dovish 50 basis point cut,” said Mohamed El-Erian, a Bloomberg Opinion columnist and president of Queens College at the University of Cambridge. “My question is what has changed since July, when they decided not to cut rates, to now have this very aggressive rate cut and aggressive signaling.”

Here's what the rest of Wall Street is saying:

Phil Mesman, portfolio manager at Picton Mahoney Asset Management:

“Given that inflation risks have receded, a 50 basis point rate cut is a reasonable insurance policy against further deterioration in the labor market. Moreover, since inflation risks appear to be of little concern, a rate cut is not an overly aggressive first step.”

Nathan Thooft, senior portfolio manager at Manulife Investment Management in Boston:

“The fact that the dot plot doesn’t suggest more 50bp moves reinforces the narrative that this is just the beginning and is proactive, rather than a trend of more 50bp cuts and worrisome economic trends. It may also suggest they regret not starting with a 25bp cut at the last meeting.”

Keith Lerner, chief market strategist at Truist Financial:

“We still view this as a market-friendly rate cut and would not be surprised if stocks move higher as investors digest this news. We think the Fed is right to cut rates more to get out of a very tight constraint level and with inflation already moving toward its target.”

Paresh Upadhyaya, director of fixed income and currency strategy at Amundi:

“The market induced the Fed to cut rates by 50 basis points. While the market may be eager to price in a high probability of another 50 basis point cut, the change in the statement suggests that the Fed remains data dependent and could just as easily move to a 25 basis point cut.”

Cameron Dawson, CIO of NewEdge Wealth:

“Equities have been encouraged by support from the Federal Reserve and signs of a sustained pickup in U.S. economic growth. This is a favorable backdrop for the broad equity market, including cyclical sectors, which benefit from stronger growth, while interest rate-sensitive sectors benefit from a lower yield environment.”

Chris Murphy, co-head of derivatives strategy at Susquehanna International Group:

“Materials and cyclical stocks led the gains, while defensive stocks underperformed. I expect this trend to continue, with defensive sectors lagging and cyclical sectors leading.”

Garrett Melson, portfolio strategist at Natixis Advisors LLC:

"With real rates so tight and moving into restrictive territory, it makes sense to front-load easing to get back to neutral more quickly. A 50 basis point rate cut would send a loud and clear message, and I think that signal is key for the market. Powell policy is positive for the labor market, which is ultimately supportive of risk appetite."

Steve Sosnick, chief strategist at Interactive Brokers:

“The stock market got its way, at least for now. I find it interesting that ‘risks balanced’ is used twice in the third paragraph, so we might want to learn more about the relative balance, but the statement was certainly dovish overall. The question now is how much of the market, which had previously been up for seven straight days, was already priced in?”

Helen Given, Forex trader at Monex:

“The yen is clearly the big winner in all of this as the interest rate differentials are now much narrower. The dot plot is the bigger story. The Fed is still less forthcoming than traders are about how much easing to do this year, which is why we saw some of the initial dollar losses pare back a bit.”

Dave Mazza, CEO of Roundhill Investments:

“The FOMC cut rates by 50 basis points, in line with recent expectations. The cut acknowledges the Fed’s concerns about the employment situation, which should bode well for risk sentiment in the near term. While the action was clearly dovish, investors will be watching Powell’s comments at the press conference to gauge the extent of that dovishness, especially given that the inflation picture has improved, but is far from mission accomplished.”

Kevin Gordon, senior investment strategist at Charles Schwab:

“The most important part is the change in the statement, showing how focused the labor market is now. Clearly, Fed members see greater downside risks to job growth, but they also know they have plenty of room to dial back restrictive policy.”

Market reaction:

Influenced by the FOMC statement and the summary of economic forecasts, U.S. stocks once rose sharply, with small-cap stocks rising nearly 2.5% at their highs, and the S&P 500 index also briefly hit a record high. However, after Powell began his speech, all major stock indexes fell and eventually closed lower. Powell warned not to assume that the sharp interest rate cuts will continue.

The U.S. dollar index fell sharply after the FOMC statement but rebounded after Powell's speech.

Before Powell's speech, gold had risen to an all-time high of $2,600, and then fell back to $2,550 an ounce, a drop of $50 from its intraday high, completely reversing the gains since the announcement of the Federal Reserve's interest rate decision.

U.S. Treasury yields fell across the board after the FOMC statement was released, and rebounded higher after Powell's speech. The 2-year Treasury yield was flat on the day, while the long-term Treasury yield rose 7 basis points!

Bitcoin briefly broke through $61,000 during the session before falling back to trade flat on the day.

The article is forwarded from: Jinshi Data