After indicating at Jackson Hole downward adjustments to interest rates were on the cards, the choice of Chairman Powell to go for a -0.50% Fed. Fund cut was ‘somewhat’ unexpected by its order of magnitude.
During the press conference, a journalist perked up. He asked the Chairman how in July 2024 a -0.50% cut was not on the table and come September 18th, when the backdrop of data would seemingly not justify it, the monetary authorities implemented it anyway. ‘What was this secret catalyst behind today’s decision?’ he insisted.
The reply was not one he would have bargained for. ‘It is in the interest of the American people’, replied Powell…
The Chairman of the Federal Reserve (Fed.) went on to outline a continued ‘hunky dory’ state of the US economy. ‘Markets should not get ahead of themselves and expect consistent cuts of this magnitude in the future’ he remarked. ‘Policy will be assessed meeting by meeting’, he hammered home, while revealing most of the voting members of the FOMC had penciled in further rate cuts for 2024 already.
Powell underscored his institution’s wisdom in holding back cuts until now. ‘The Fed. is not behind the curve’ he pointed out, acknowledging his fellow Central Bankers in Canada, UK, European Union, Switzerland, were further advanced in their own rate reduction cycles, despite similar inflation issues in their respective countries, back in 2022/23.
Markets had been pushing for a larger US rate cut, as attested by the behavior of the 2year Treasury. Unbeknown to the Fed., it would seem they have now taken back the initiative over the FOMC team, restoring on their radar the famous ‘Fed. Put.’
Today, the Fed. would have no choice but to rescue decisively should there be any future disorderly markets. Afterall the Fed. is now firmly engaged in its own rate cutting cycle in ‘support’ of the livelihood of the American people.
And so here ends their ‘Higher for Longer’ narrative in the fall of 2024.
