Federal Reserve Interest Rate Cut Overview

Key Announcement

• The Federal Reserve cut the interest rate by 0.5%, a surprising decision.
• The decision was made by the Federal Reserve Open Market Committee.

Market Reaction

• Despite the rate cut, the stock market declined.
• Initially, markets such as S&P 500 and NASDAQ rose but closed lower.
• The bond market (TLT) also closed slightly lower.

Statements by Jerome Powell

• US economy is strong; labor market has cooled down.
• No risk of recession seen.
• Inflation has eased from 7% to 2.2%.
• Dual mandate: maintain maximum employment and low inflation.
• Lower risk of re-inflation but higher risk of increasing unemployment.

Reasons for the 0.5% Cut

• Confidence in declining inflation and less tight labor market.
• Aim to maintain a solid labor market.
• Willing to take stronger action if labor market deteriorates.

Historical Context

• 0.5% cuts usually occur in bad economic times (e.g., financial crises).
• Surprising to see such a cut in current conditions.

Summary of Economic Projections (SEP)

• Predicted interest rates:
  • 2024: End at 4.4%
  • 2025: Down to 3.4%
  • 2026: Down to 2.9%
• Implications for refinancing and borrowing.

Implications for Financial Markets

• Interest rate cuts generally favorable for stock and bond markets.
• Short-term market adjustments possible.
• Good news for property, cars, and REITs.
• Slightly negative for banks due to reduced interest revenue.

Conclusion

• Inflation is under control, marking a significant financial milestone.
• Expect ongoing market volatility but an upward trend.
• Current market conditions are favorable for investors.

Additional Observations

• Immediate positive movement in futures market post-announcement.
• S&P 500 futures indicated a potential for reaching all-time highs again.

Personal Note

• The speaker shares a personal bet loss due to unexpected rate cut.
• Emphasizes long-term positive outlook despite short-term market reactions.