Oh, what a night! The Fed cut by 50 basis points to a corridor of 4.75% - 5% (Lower Bound / Upper Bound), marking its first reduction in more than four years. The question on everyone’s lips is: why have they cut so aggressively? In his press conference, Jay Powell alluded to the softening labour market and the Fed’s dual mandate of employment and inflation. But what has changed since July? The simple answer is the cumulative effect of economic conditions, culminating in a bold decision that wasn’t unanimous among the committee members.
The Fed is clearly concerned about a slowdown and is buying insurance for a Goldilocks scenario of a soft landing. Their main concerns revolve around the 'lags of monetary policy.' Not wanting to spook the market, Jay Powell added that "he is in no rush to make further decisions," although the Fed's dot plots still have 50bps priced in by the end of the year.
Will the Fed’s decision have a trickle-down effect on other central banks? The BoE meets today—no change is expected, with rates currently at 5%. Before our next report, we’ll also hear from the BoJ, PBoC, SARB, and the Turkish Central Bank (CBRT). Combine that with US Initial Claims and the Philly Fed report, and we have a busy 24 hours ahead.
What’s happening in the markets? Both the Dow Jones and S&P closed lower, but Asian stocks have risen, with the Nikkei up 2% and Hang Seng +1.9%. The dollar immediately weakened—Cable reached 1.3297 before reverting to 1.3153. Bitcoin rose 3% to $62,066.88, and Ether rose 3.8% to $2,415.26. Interestingly, West Texas Intermediate crude was little changed at $71 per barrel, while spot gold rose 0.2% to $2,563.52 an ounce, and the yield on 10-year Treasuries advanced two basis points to 3.72%.
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