Latest / Markets with Megan: A Quick Financial Markets Update / Fed's Bold 50 Basis Point Rate Cut: Analyzing Market Reactions and Outlook

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Fed's Bold 50 Basis Point Rate Cut: Analyzing Market Reactions and Outlook · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: I guess you can say go big or go home.
• 0:01
  Megan Horneman: It is Wednesday, eptember the 18th, and we got the much anticipated Fed meeting today and we've talked about this.
• 0:09
  Megan Horneman: There's been a lot of back and forth between 25 basis points or 50 basis points and they went all in.
• 0:15
  Megan Horneman: They went with 50 basis points.
• 0:17
  Megan Horneman: Today I'm going to break down what's happening because, as we are doing this podcast, we're still also in the middle of a very long press conference that he does after the meeting.
• 0:26
  Megan Horneman: But the initial release was the cutting by 50 basis points.
• 0:29
  Megan Horneman: What they did was state that the balance of risks to their dual mandate, which is employment and inflation, that those risks are now in balance.
• 0:40
  Megan Horneman: There was one dissenter on this, and this is important because they try and usually get these unanimous and this is the first time that someone's dissented since 2005.
• 0:49
  Megan Horneman: And they mentioned also that they'll continue to assess for additional adjustments.
• 0:54
  Megan Horneman: Now let's talk about their forecast, because they also put this projection material out, where they talk about their forecast for employment, for GDP, for inflation and for the Fed funds rate.
• 1:05
  Megan Horneman: There was no major change to GDP.
• 1:07
  Megan Horneman: They're expecting the economy to grow 2% actually for the next four years.
• 1:12
  Megan Horneman: They expect 50 more basis points of rate cuts this calendar year.
• 1:17
  Megan Horneman: So there are two more meetings, and one in November and December.
• 1:21
  Megan Horneman: So that would suggest maybe 25 basis point increments in those meetings and then a hundred basis points of cuts next year.
• 1:29
  Megan Horneman: So a slowdown in the interest rate cuts next year.
• 1:31
  Megan Horneman: They also said that they won't reach that 2% inflation which is their target until about 2026.
• 1:38
  Megan Horneman: They expect employment to be 4.4% by the end of this year and that's up from 4% that they had in their projection in their last meeting at June.
• 1:49
  Megan Horneman: They also lowered the core PCE, which is that inflation indicator, their favorite inflation indicator, from 2.8 in their June meeting to 2.6%.
• 2:00
  Megan Horneman: Some of the comments that have come out of the press conference and remember the press conference he gets asked a lot of the same questions, just in maybe different wording.
• 2:07
  Megan Horneman: Basically he's mentioning that the labor market is cooling.
• 2:11
  Megan Horneman: He continues to mention the risks now remain more balanced.
• 2:16
  Megan Horneman: Inflation has eased substantially and now they have much greater confidence that inflation will move to that 2% target.
• 2:23
  Megan Horneman: They basically continued to reiterate that this is just a removing of the restrictive policy, so almost like a normalization.
• 2:31
  Megan Horneman: They also assured us that they'll make decisions meeting by meeting.
• 2:34
  Megan Horneman: They will recalibrate the policy stance if they need to, if they need to go quicker or slower.
• 2:40
  Megan Horneman: And then they also mentioned that the projections that were put forth in those materials I just discussed are projections if all of their economic projections come true.
• 2:51
  Megan Horneman: So if the unemployment rate moves higher, if inflation continues to come lower, then they have the ability to continue to cut interest rates.
• 3:00
  Megan Horneman: If those things do not materialize, then that can change as well.
• 3:04
  Megan Horneman: What's the market doing on this?
• 3:05
  Megan Horneman: Initially, obviously, equities surged on this information.
• 3:09
  Megan Horneman: We had triple-digit gains in the Dow.
• 3:11
  Megan Horneman: As the press conference has gone on and we see this often that it just loses some of the steam it went a little negative.
• 3:20
  Megan Horneman: It's basically around flat right now.
• 3:22
  Megan Horneman: By the time we get back to our desks it might be a little bit different, but equity markets definitely like the fact that they did the 50 basis points.
• 3:29
  Megan Horneman: In the bond market we now finally have a positive yield curve, meaning that the two-year yields are lower than long-term yields.
• 3:36
  Megan Horneman: So you've seen some of the long-term yields rising on this news.
• 3:40
  Megan Horneman: Some of the other big movers are the dollar.
• 3:42
  Megan Horneman: The dollar is getting hit very hard today on a 50 basis point move from the Fed.
• 3:46
  Megan Horneman: Remember the Fed was one of the most aggressive central banks and has been on hold for so much longer.
• 3:53
  Megan Horneman: A lot of other central banks have already cut, so the dollar is down.
• 3:57
  Megan Horneman: It is testing that psychological level of 100 on the dollar index Gold.
• 4:01
  Megan Horneman: Lastly, that was the other thing that also actually surged on, it being 50 basis points as opposed to 25 basis points.
• 4:09
  Megan Horneman: That's all we have today.
• 4:11
  Megan Horneman: If you like this podcast, please subscribe.
• 4:14
  Megan Horneman: Hit that alarm bell.
• 4:16
  Megan Horneman: If you'd like more of our podcasts, please, you can go to marketswithmegan.
• 4:19
  Megan Horneman: fm.
• 4:21
  Megan Horneman: Thank you.