Fed Cuts Rates Again, But Drops “Act As Appropriate” Pledge Signaling It Is Done Cutting
While the assumption is that Fed officials (having passed on the opportunity to lean against dovish market expectations) would not shock the market and vote to keep rates unchanged (96% odds and Fed has never surprised at that level), that’s precisely what happened when the Fed announced it would cut rates by another 25bps, the 3rd rate cut in the past 4 months, and now the big question is whether this will be the last rate cut for the foreseeable future.
Key takeaways (via Bloomberg) from the FOMC decision:
- Fed cuts federal-funds rate target range by a quarter point to 1.5%-1.75% — as investors and most economists expected — in the third straight reduction aimed at protecting the record-long U.S. expansion from threats posed by tariff wars and weak global growth, amid “muted inflation pressures”
- But FOMC signals it could pause, as the statement omits the familiar pledge from recent months to “act as appropriate to sustain the expansion”; Fed instead says it will monitor incoming information as it “assesses the appropriate path” of rates
- Fed still leaves door open to easing, saying that uncertainties remain around its outlook even as it calls labor market and consumption “strong”; acknowledges that business investment and exports “remain weak”
- Kansas City Fed President Esther George and Boston Fed President Eric Rosengren also dissent for third straight time, preferring no rate move at this meeting; St. Louis Fed President James Bullard votes with FOMC majority after dissenting at prior meeting in favor of half-point cut
- Fed lowers two other key interest rates by quarter point, bringing interest on excess reserves rate to 1.55% and discount rate to 2.25%
As expected, and priced in, The Fed cut rates 25bps and shifted the wording in the statement to a more hawkish stance, from:
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