Chairman Powell met the expectations of the risk market with a 50 basis point interest rate cut. However, regarding the choice of a larger rate cut this time, he also confidently emphasized that a soft landing for the economy is still the basic situation, and repeatedly reiterated that the performance of the U.S. economy is "pretty good." good".
Key Summary:
With inflation falling, a soft landing remains the baseline expectation. "The U.S. economy is in good shape, and our decisions today are to keep it that way." "The U.S. economy is basically OK." "I believe inflation will fall to 2%."
Stay ahead. Powell pledged to “stay ahead” in rate adjustments in response to the slowdown in the job market, with a particular focus on hiring rates (the 50 basis point rate cut is our commitment not to fall behind). The Fed raised its unemployment rate forecasts to 4.4% in 2024 (from 4.0%), 4.2% in 2025 (from 4.0%), and 4.3% in 2026 (from 4.1%).
The 50 basis point change is intended to convey a "powerful move." Powell acknowledged that a 50 basis point adjustment is a strong move, but he also said that it will not necessarily proceed at the same pace in the future ("We should not assume that this is the new normal"), leaving room for maneuver in future Fed meetings. Basically, don't expect 50 basis point adjustments all the time, nor do you expect a 75 basis point rate cut, but the Fed may also make multiple 50 basis point adjustments if economic data proves it necessary ("We will always do what we think is good for the economy at the moment, and today's decision is no exception.").
The key lies in hard data. The Fed will focus on hard economic data rather than soft sentiment data, and will pay special attention to the market's reaction to lower interest rates.
We stand on the same page. Powell pointed out that all 19 members agreed that there should be multiple rate cuts this year, with 17 members thinking there would be three full rate cuts and 2 members thinking there would be four, which was a "significant difference" from the situation in June, The only dissenter was Bowman, who supported a rate cut of just 25 basis points this time.
Market reaction:
Interest Rates: The market still expects 2.5 more rate cuts in 2024, slightly ahead of the Fed’s dot plot median. Bond yields barely moved after the FOMC meeting as the outcome was largely in line with expectations.
Forex: The Fed’s decision led to a weaker dollar, especially considering that the Bank of Japan is likely to maintain a hawkish stance at its upcoming meeting, with the dollar weakening against the yen.
Stocks: Stocks rose as the Federal Reserve implemented "forceful" easing policy and said economic conditions remained good and inflation was expected to fall.
Cryptocurrencies: Benefiting from the strong rise in the stock market, BTC rebounded to $60k, and altcoins also performed strongly, showing an improvement in overall risk sentiment.
