The Federal Reserve ordered up a half-point rate cut on Wednesday, taking a first big step toward cutting its key rate a full percentage point by year’s end. The S&P 500 darted into record territory on the aggressive action to support a softening labor market, paring gains in volatile action. Fed Chairman Jerome Powell began speaking just after 2:30 p.m. ET.
New projections released with the 2 p.m. policy statement penciled in two more quarter-point rate cuts in 2024, one at each of the year’s final two meetings.
Check back with live updates.
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Interest Rate Cuts Coming: Implications For Investors Ahead Of The September Fed Meeting
3:18 p.m. ET
Independent Federal Reserve
Fed Independence: “Countries that have independent central banks have lower inflation.” Asked whether sitting presidents should have a say, as ex-President Trump has opined, Powell said he thinks the current set-up will continue.
3:17 p.m. ET
Stocks Volatile, But Turn Positive
Stocks remain volatile, but have turned positive again. The S&P 500 is up 0.2%, with the Nasdaq rising 0.25%. The Dow Jones is up 0.3%.
3:15 p.m. ET
Market Expectations Didn’t Sway Fed, Powell Says
Powell also indicated that the Fed wasn’t swayed to make a half-point rate cut by market expectations of a big cut.
3:11 p.m. ET
Fed Might Have Cut In July In Hindsight
“If we had gotten the July (jobs) report before the (July 30-31) meeting,” Powell said the Fed might have done its first rate cut at the prior meeting.
3:07 p.m. ET
Powell: Not Thinking About Politics
Powell brushed aside a question about whether there was any concern about Fed political motives being questioned. He said Fed policymakers only focus on their employment and inflation mandates.
For his part, ex-President Trump said this week that the Fed was set to cut rates because of the weak economy.
3:05 p.m. ET
Stocks Reverse Lower
The S&P 500, up 1% shortly after the Fed’s 2 p.m. announcement, now down 0.2%.
The 10-year Treasury yield rose to 3.69% vs. 3.64% on Tuesday. The two-year yield climbed slightly to 3.62%.
3:03 p.m. ET
Powell: Economy In ‘Good Place’
Powell said that further declines in job openings may translate into higher unemployment. He noted that the level of openings to unemployed persons has come down from 2 to 1 to nearly 1 to 1. “The U.S. economy is in a good place,” Powell said, and today’s move is meant to keep it there.
2:53 p.m. ET
More Soft Landing Vibes
The “economy is still growing at a solid pace,” which should support the labor market, Powell said. “We’re not seeing rising layoffs.”
2:52 p.m. ET
Fed Will Let Balance Sheet Shrink
“We’re not thinking about stopping runoff,” Powell said. “For a time,” he said, rates can rise while the balance sheet contracts.
2:49 p.m. ET
Powell: Fed Not Behind The Curve
Powell said that Fed policymakers don’t think they’re behind the curve. The big opening move is “a sign of our commitment not to get behind.”
2:46 p.m. ET
‘Broad Support’ For 50 Basis Points
Fed chief Powell said there was “broad support” for the 50-basis-point move. That suggests other committee members may have preferred a quarter point, but decided not to voice dissent aside from Gov. Bowman.
The Fed projections do indicate a divided committee. Nine policymakers penciled in 75 basis points in cuts or less for all of 2024. Ten saw one percentage point in cuts or more.
2:43 p.m. ET
Powell: Downward Revisions To Jobs Growth Spurred Big Fed Move
Powell noted downward revisions to earlier job-growth data in pushing the Fed to cut by a half-point.
BLS revisions showed 818,000 fewer jobs were added over the year through March than previously reported. That means employers added about 2.1 million workers, not 2.9 million.
2:40 p.m. ET
Powell: Fed Projections Aren’t A Plan
“If the economy remains solid and inflation persists, we can dial back policy restraint more slowly.” He added that rates could come down faster if the labor market weakens.
2:34 p.m. PT
Powell: Fed Acted To Aid Labor Market
The Fed chair said that members of the policy-setting committee decided to “reduce the degree of policy restraint” so that “strength in the labor market can be sustained.”
Powell still appears to believe in a soft landing, suggesting more moderate growth ahead
2:33 p.m. ET
One Dissenter Favored Quarter-Point Fed Rate Cut
The Fed statement notes that Fed Gov. Michelle Bowman, who was appointed by former President Trump in 2018, was the lone dissenter, preferring a quarter-point move.
2:27 p.m. ET
Stocks Firming Ahead Of Powell
The S&P 500 is strengthening again, up 0.45%, as Powell gets set to take to the podium at 2:30 p.m. PT. The 10-year yield is at 3.66%. The 2-year Treasury yield has fallen to 3.57%, 9 basis points below the 10-year Treasury yield. That’s steepest upward slope for the Treasury yield curve since June 2022.
2:23 p.m. ET
Fed Sees ‘Greater Confidence’ In 2% Inflation Return
The Fed meeting policy statement noted “greater confidence that inflation is moving sustainably toward 2 percent.” New Fed projections show the Fed’s primary inflation rate, based on the core PCE price index, slowing to 2.2% next year, lower than the 2.3% projection in June.
2:16 p.m. ET
Fed Sees Unemployment Still Rising
Fed projections indicate that the unemployment rate will average 4.4% in the fourth quarter of this year and stabilize around that level through 2025. The jobless rate ticked down to 4.2% from 4.3% in August but is still a half-percentage point since the end of 2023.
2:15 p.m. ET
Stocks Pare Initial Gains On Fed Rate Cuts
The S&P 500 jumped nearly 1% shortly after the Fed rate-cut announcement, hitting a record high. But it’s given up most of those gains, up 0.2%. The Nasdaq is up 0.4% and the Dow Jones 0.2%.
The 10-year Treasury yield edged up to 3.66% vs. 3.64% on Tuesday, but already off post-Fed highs.
2:11 p.m. ET
Neutral Fed Rate Estimate Raised
The Fed continued to bump up its estimate of the long-run neutral Fed policy rate, to 2.9% from 2.8% in June. That implies that the neutral interest rate, one that neither accelerates nor restricts economic growth, is 0.9 percentage point above the rate of inflation. Many on Wall Street think that’s still too low.
2:09 p.m. ET
No Change In Balance Sheet Policy
Some Wall Street firms had anticipated that the Fed would bring its balance-sheet contraction, known as quantitative tightening, to an end if policymakers saw a need for a half-point rate cut to support a softening labor market.
However, that didn’t prove to be the case.
Each month, the Fed is letting up to $25 billion in Treasury securities and $35 billion in government-backed mortgage securities run off its balance sheet as they mature, rather than reinvesting the sum.
2:06 p.m. ET
Fed Rate Cuts In 2025
Fed projections are penciling in an additional full percentage point of rate cuts in 2025. That would bring the federal funds rate down to a range of 3.25% to 3.5%.
Fed Rate-Cut Surprise
Ahead of the Fed meeting policy announcement, markets saw 59% odds of a half-point Fed rate cut and 41% odds of a quarter-point move, according to CME Group’s FedWatch tool.
In a Friday morning note, Deutsche Bank economists wrote that this level of uncertainty was a rarity, setting up the biggest Fed meeting surprise in 15 years — no matter the outcome.
Markets were pricing in 89% odds of at least a full percentage point in rate cuts by the end of 2024, with 52% odds of 1.25 percentage points in cuts.
Is Fed At Risk Of Falling Behind The Curve?
The uncertainty over what the Fed would do reflects the dilemma policymakers faced going into this week’s Fed meeting: Broad economic growth appears to be holding up pretty well, but the labor market has continued to soften.
The latest GDP tracking estimates from S&P Global show Q2 GDP growth may be revised down to 2.8% from 3%. Q3 GDP is on track to grow a solid 2.3%.
Yet the unemployment rate has climbed to 4.2% from 3.7% at the start of 2024, while private-sector job gains have slowed to 96,000 per month over the past three months from 155,000 at the end of 2023.
Federal Reserve Chairman Jerome Powell warned that “downside risks to employment have increased” in his annual Jackson Hole, Wyo., speech on Aug. 23. Powell drew a clear line: “We do not seek or welcome further cooling in the labor market conditions.”
Yet that’s just what the August jobs report delivered on Sept. 6, when net hiring for June and July was revised down by 86,000 jobs. Other new Labor Department data shows job openings falling by 560,000 over June and July to the lowest level since January 2021.
What Do Fed Rate Cuts Mean For The S&P 500?
History shows that the S&P 500 usually fares well after the Fed starts to lower interest rates. Over the prior nine rate-cutting cycles, the S&P 500 has gained nearly 10% on average in the six months following the first cut. The major exceptions came after the Fed began cutting in 2001 and 2007, because Fed easing didn’t prove sufficient to avert recession and a hit too S&P 500 earnings.
Be sure to read IBD’s The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
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