On Thursday, the Federal Reserve officially initiated a rate cut cycle, announcing a 50 basis points reduction in the federal funds rate, and expecting more accommodative policies to be introduced in 2024. The Federal Reserve stated in its quarterly economic forecasts that it expects further rate cuts in 2025 and 2026.

After this interest rate cut, the Federal Reserve officials predict a federal funds rate target range of 4.25% to 4.5% by the end of 2024, compared to a previous range of 5.25% to 5.5%. According to the Federal Reserve's dot plot forecast, the rate target range for the end of 2025 may further decline to 3.25% to 3.5%.

Federal Reserve Chairman Powell emphasized at the press conference that the main purpose of this interest rate cut is to stabilize the job market. He emphasized, "We are confident in the adjustments to the current monetary policy, and believe that this appropriate adjustment will help maintain a strong job market, achieve moderate economic growth, and stabilize inflation at 2%."

The Federal Reserve's interest rate cut decision received support from the majority of officials, but Federal Reserve Governor Michelle Bowman voted against it, advocating for a 25 basis point cut. Powell stated that although there are different opinions, committee members have broad consensus on interest rate cuts, and all 19 members predict multiple interest rate cuts by the end of the year.

Powell also emphasized at the press conference that an interest rate cut does not mean an intensification of the Federal Reserve's expectation of an economic recession. He pointed out, "There are currently no signs to suggest an increase in recession risks. Our policy adjustments are mainly for recalibration to adapt to the current economic conditions."

Regarding the housing market, Powell acknowledged that housing prices remain a stubborn factor in inflation, although prices in other areas have started to decline. He stated that while it will take time for the slowdown in rent growth, housing price inflation will gradually cool down in the long term.

When asked whether this rate cut would be seen as a political motive, Powell strongly denied it, emphasizing that the Fed's decision is not influenced by political factors and the only consideration is to serve the economic interests of the American people.

Powell concluded that the Fed's policy will be adjusted based on the future development of the economy, whether it is to accelerate, slow down, or pause the loose policy, it will depend on the economic situation. He stated that the future path of rate cuts will depend on changes in the labor market and inflation, but the US economy is currently strong.

This rate cut marks a new phase in the Fed's efforts to balance inflation suppression and maintaining employment. With changes in economic data, more policy adjustments will follow.

Lindsay Rosner, Managing Director of Investment at Goldman Sachs Asset Management, said: The Fed has achieved what the market wanted. The market is satisfied with the Fed. The market is still ahead of the Fed, and it is expected that there will be further rate cuts of 75 basis points this year (the Fed dot plot indicates 50 basis points).

Renowned economist Mohamed El-Erian said that during the press conference, faced with repeated questions from reporters, Fed Chair Powell had to deal with the contradiction between the unusual move of starting a rate cut cycle with a 50 basis point cut and the repeated assessment of the "good economic conditions." This became more tricky, and it can be understood that he did not want to admit that today's 50 basis point cut was an "addition" to the lack of a rate cut in July.

"Fed Whisperer" Nick Timiraos pointed out in his latest article that the Fed is currently trying to prevent previous rate hikes from further weakening the US labor market. Powell stated at the press conference: "We are committed to maintaining our economic strength. This decision reflects our increasing confidence that by appropriately adjusting our policy stance, we can maintain the strong momentum of the labor market." Although some Fed officials argued in recent weeks that the economy is not weak enough to warrant a 50 basis point rate cut, others concluded that the cooling of the labor market this summer has provided a reason for further rate cuts, as the Fed is effectively making up for lost time.

Editor/Rocky