Friends,
The Federal Reserve decided to cut the Fed Funds rate by 50 basis points today. The yield will now be 4.75% -5% (it was 5.25%-5.50%). Given the Fed probably could have cut by a quarter point back in July, today’s 50 basis points move seemed to sit fine with the markets. The reason that the Fed and Chair Powell are now more emboldened to begin to loosen monetary policy is because they are comfortable that inflation has been tamed, and that the risk that the labor market could continue to soften is higher at this point in time. Indications are that we will see more cuts before year end and eventually even further cuts next year. Many feel that the Fed Funds rate will be around 4% by year end and 3% -3.5% at some point next year. Remember, the bond market is already there, so the Fed is simply catching up.
As for stocks, Fed days are always a wild ride. Stocks moved quickly higher on the rate cut news then gave up those gains in the last hour. By the close, the Dow Jones Industrial Average was down 103 points to finish the day at 41,503. The S&P 500 was down 16 points to close at 5,618. The Nasdaq was down 54 points to close at 17,573. Gold was down $15 to trade at $2,577 per ounce, while oil was down $1.19 to trade at $70.00 per barrel WTI.
So, the easing of monetary policy has begun. You remember the old saying, don’t fight the Fed. We’ll see if that holds true during this cycle. The question is, have the markets already been front running the Fed? Stay tuned.
Have a nice evening everyone.
