(Reuters) - The Federal Reserve cut interest rates by a quarter of a percentage point on Thursday as policymakers took note of a job market that has "generally eased" while inflation continues to move towards the U.S. central bank's 2% target.
"Economic activity has continued to expand at a solid pace," the central bank's rate-setting Federal Open Market Committee said at the end of a two-day policy meeting in which officials lowered the benchmark overnight interest rate to the 4.50%-4.75% range, as widely expected. The decision was unanimous.
In a press conference after the announcement, Fed Chair Jerome Powell said Tuesday's election in which Republican Donald Trump was elected president, will have no effects on policy decisions in the near term. He also said some of the downside risks to the economy have diminished amid stronger economic data.
MARKET REACTION:
STOCKS: The S&P 500 extended a gain to 0.81% after the news
BONDS: The yield on benchmark U.S. 10-year notes eased to 4.3355%. The 2-year note yield rose to 4.2139%
FOREX: The dollar index was little moved -0.69% with the euro up 0.62%.
COMMENTS:
DAN SILUK, HEAD OF GLOBAL SHORT DURATION & LIQUIDITY AND PORTFOLIO MANAGER, JANUS HENDERSON INVESTORS (by email)
"What initially stands out, in what is a very brief statement, is the removal of this line: 'The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent.'
"The change could reflect a more cautious or tempered optimism regarding the trajectory of inflation towards the FED’s 2% target. While progress has been acknowledged, the removal of the phrase might indicate that the Committee wants to avoid signaling an overly confident stance on inflation, especially in the context of an uncertain fiscal path.
"By removing the assertion of gaining "greater confidence," the Fed may also be signaling its readiness to respond flexibly to incoming data. This change in language could be interpreted as a commitment to adjust monetary policy as needed, based on how actual inflation data and economic conditions evolve, rather than committing to a perceived trajectory.
"To some observers, the omission of this statement could suggest that the Committee's confidence in inflation moving sustainably toward the 2 percent target has waned."
THOMAS HAYES, CHAIRMAN, GREAT HILL CAPITAL, NEW YORK
“It was right on schedule, and it was key that they followed through with market expectations despite the results of the election. Because if they had walked back the expectation to cut, it would have been perceived as political. So what they basically asserted is that (1) they are an apolitical organization and they follow through as planned and (2) they are fully cognizant of the dual-sided risk related to the labor market and continuing towards the neutral rate will alleviate any risks to the labor market unraveling.”
BEN VASKE, SENIOR INVESTMENT STRATEGIST, ORION PORTFOLIO SOLUTIONS, OMAHA, NEBRASKA
"As expected, the FOMC announced a 25-basis point cut today, marking a reduction in their aggression relative to the September cut. Notably, longer term rates have been on a steep upward trajectory since the first cut, and have begun to decline post announcement today. With a backdrop of economic strength in the U.S., the path forward will likely be more complex for the Fed than a steady pace of cutting."
ELLEN HAZEN, CHIEF MARKET STRATEGIST, F.L.PUTNAM INVESTMENT MANAGEMENT, WELLESLEY, MASSACHUSETTS
"So this was a big non-surprise result. You can see that in both the 10-year and the S&P, both of them are pretty much exactly where they were. So the market was not surprised by this at all, but the key question, which is a lot of the policies that have been announced are very likely to be inflationary. And the questions to ask Powell at the press conference will be whether or not he and the committee will start to look to policies rather than data so that they're not behind the curve, particularly given that ignoring fiscal policy back in 2021-2022 arguably allowed inflation to get unexpectedly high before they had to step in. If they had reacted to fiscal policy back then, inflation presumably wouldn't have been as high. So it's a very big question.
"A lot of commentary has been written about how being data dependent this cycle has led to being late. And at some point they are going to have to address that and decide if they still want to be data dependent and therefore run the risk of being late."
UTO SHINOHARA, SENIOR INVESTMENT STRATEGIST, MESIROW, CHICAGO
“The U.S. dollar has pulled back from the gains it saw following the recent election, as the market's focus shifted towards the looming Federal Reserve policy decision.
“As expected, the Federal Reserve lowered interest rates by 25 basis points, a move that was widely anticipated by market participants.
“While the comments indicate that labor and inflation are ‘roughly in balance,’ noting that inflation ‘remains somewhat elevated’ indicates that the cutting cycle will continue to be data-dependent.
“Fed Chair Powell is likely to communicate a ‘wait-and-see’ approach with another key jobs report and inflation data coming before the next FOMC meeting. A similar cautious tone would not be surprising regarding questions around longer-term policy changes and their impacts, given the freshness of the election results.”
MATTHIAS SCHEIBER, GLOBAL HEAD OF PORTFOLIO MANAGEMENT AT ALLSPRING GLOBAL INVESTMENTS SYSTEMATIC EDGE TEAM, LONDON
"The cut was widely expected based on recent inflation progress, and while economic data remain robust, it was broadly welcomed as a sign that the Federal Reserve is keen to bring inflation-adjusted yields down further. A Republican sweep seems very likely, and looser fiscal policy as well as trade tariffs might lift not only growth but also inflation. Market expectations for a December rate cut have moved down.
"That said, the inflation rate has continued to improve. This will likely lead to a less aggressive rate-cutting cycle compared with what the market was expecting back in September when the Fed started its cuts. The key data points we’re monitoring concern the labor market - the key challenge for the U.S. economy moving forward."
MICHELE RANERI, VICE PRESIDENT AND HEAD OF U.S. RESEARCH AND CONSULTING AT TRANSUNION IN CHICAGO (in an email)
“Today’s rate cut indicates that the Fed has continued to see positive signs when it comes to inflation and the economy as a whole following its last rate cut. It is anticipated that there will be subsequent cuts as we move into 2025. The hope is that this will continue to stimulate consumer activity in the credit market, particularly when looking at credit products that have been sluggish in recent quarters.
For example, continued rate cuts could begin to drive down mortgage rates which have remained stubbornly high. This may help motivate more potential home buyers who have been holding off due to relatively high mortgage rates. It also could begin to stimulate the refinance market, in particular among those borrowers who have taken out a mortgage recently with a higher interest rate. Similar movement could also potentially be seen in the auto refinance market in the months to come.”
MICHAEL ROSEN, MANAGING PARTNER AND CIO, ANGELES INVESTMENTS, SANTA MONICA, CA
"The Fed action today, a 25-basis point cut in the Fed funds rate, was fully expected by the market. The Fed removed language on making progress on inflation, replacing it with the observation that inflation remains elevated. This cautionary note has caused Treasuries to sell-off a bit.
"The reality is that inflation remains above target, the economy is humming above trend, and the Fed will have to moderate its easing program. The market is adjusting to this more measured pace of easing by pushing yields higher."
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN
"In an action-packed week, the Fed didn’t add any drama. Cutting by 25 basis points still keeps the federal funds rate restrictive, but not as restrictive as it was. Although the Fed says the risks to its employment and inflation goals are roughly in balance, they probably should have italicized “roughly.” Elections have consequences and we could see a marginal improvement in growth relative to their forecasts, but also a marginal increase in inflation relative to their forecasts. That would call for a more gradual pace of rate reductions. They don’t need to backtrack on rate cuts, but they don’t need to hurry up with them either."
RYAN DETRICK, CHIEF MARKET STRATEGIST, CARSON GROUP, OMAHA
“The Fed didn’t rock the boat it was widely assumed they would cut by 25 basis points, which they did. It was nice to see a unanimous decision.”
“The big question now is will they cut again in December? Our best guess is they do, as inflation continues to improve.”
“It’s nice that they are recognizing some improvements in the U.S. economy. At the same time there are risks to a potentially slowing labor market, which in our opinion, leaves the door wide open to another cut in December at the next meeting.”
HELEN GIVEN, ASSOCIATE DIRECTOR OF TRADING, MONEX USA, WASHINGTON D.C.
“Overall, a very cautious decision that doesn't give us much to go on when looking ahead to December. Powell may give more concrete clues in his presser but I'm expecting we'll hear about "data dependence" a lot.”