Breakfast | The Federal Reserve cuts interest rates by 50 basis points, Powell leans hawkish, and US stocks rise and then fall back

After the Federal Reserve cut interest rates by 50 basis points, the S&P 500 index hit a new daily high, but turned lower after Powell's press conference. Overall, after the Fed rate cut, U.S. stocks surged and then fell back, with a major reversal in trend. The S&P ended a seven-day winning streak, while the Dow fell for the second consecutive day. NVIDIA's rebound failed, closing down nearly 2%, while Apple rose nearly 2% against the market.

Following the Fed rate cut, the two-year U.S. Treasury yield briefly plunged by over 10 basis points, then rose after Powell's press conference.

After the Fed rate cut, the U.S. dollar index fell to a 14-month low, but rebounded after Powell's press conference, forming a V-shaped rebound. Following the rate cut, the offshore renminbi rose over 400 points intraday, breaking through 7.07 to reach a 15-month high. Bitcoin rose over $2,000 intraday, breaking through the $61,000 mark, then turned lower.

Crude oil halted its two-day rise, with U.S. oil falling from this month's high, but rebounding in the short term after the Fed rate cut. Gold rose over 1% intraday after the rate cut, hitting a historical high, then turned lower after Powell's press conference.

Federal Reserve's Significant 50 Basis Points Rate Cut

1. The Federal Reserve lowered the federal funds rate target range by 50 basis points to 4.75%-5.00%, marking the first rate cut since March 2020. Governor Bowman supported a 25 basis points cut, becoming the first Fed governor to vote against since 2005.

2. The "dot plot" indicates that the Fed will cumulatively cut rates by 100 basis points by 2024. After the 50 basis points cut in September, there is an expectation of another 50 basis points cut. The Fed is expected to cut rates by another 100 basis points in 2025, matching the June dot plot's expected rate cut.

3. The FOMC statement shows increased confidence in inflation, steadily moving towards 2%.

4. The Fed lowered the U.S. GDP growth forecast for 2024 to 2.0%; lowered the U.S. core PCE inflation forecast for 2024 to 2.6%; raised the U.S. unemployment rate forecast for 2024 to 4.4%.

U.S. Vice President Harris: For the American people, the Fed's rate cut decision is good news. However, U.S. prices are still too high.

Former U.S. President Trump commented on Powell's 50 basis points rate cut: It shows that the U.S. economy is really bad, or they are playing politics.

Key Points from Powell's Press Conference

1. No one should think that today's 50 basis points rate cut is a new speed. If the Fed had seen the non-farm payroll report released a few days after the July decision, they might have cut rates for the first time at the July meeting. Powell believes that a 50 basis points rate cut is the right choice this time; decisions will be made gradually through meetings; if the economy remains strong and inflation remains stubborn, policy adjustments may be slower.

2. Powell does not believe that monetary policy is lagging behind the curve. He stated that given the outlook, there is no lag in the necessity of rate cuts. He has been very patient with monetary policy and has been waiting, believing that patience has paid off, with inflation convincingly receding.

3. Inflation has significantly eased but remains above the Fed's target; long-term inflation expectations seem to be stable; the upside risks to inflation have diminished, while the downside risks to the labor market have increased. Victory over inflation has not been declared, but the situation is encouraging

Analysts' Comments

Bloomberg Opinion columnist and Master of Queens' College, Cambridge, Mohamed El-Erian: "My question is, what has changed since July when they decided not to cut rates, and now we have this very aggressive rate cut and very aggressive signals."

Phil Mesman, Portfolio Manager at Picton Mahoney Asset Management: "Given that inflation risks have receded, a 50 basis point rate cut is a reasonable precaution against further deterioration in the labor market. Furthermore, as inflation risks seem less of a concern, the rate cut is not an overly aggressive first step."

Nathan Thooft, Senior Portfolio Manager at Manulife Investment Management: "The dot plot does not imply more 50 basis point moves, which further confirms the notion that this is just a start, it's proactive, not a trend of more 50 basis point cuts and worrisome economic trends. This may also indicate that they regret not starting with a 25 basis point cut at the last meeting."

Keith Lerner, Chief Market Strategist at Truist Financial: "We still view this as a market-friendly rate cut, and we wouldn't be surprised if stocks move higher after investors digest this news. We believe the Fed's rate cut this time is more about getting off an overly restrictive level, and with inflation moving toward target, the Fed's move is the right one."

Paresh Upadhyaya, Director of Fixed Income and Currency Strategy at Amundi: "The market pushed the Fed to cut rates by 50 basis points. While the market may be eager to digest the high probability of another 50 basis point rate cut, the change in the statement suggests that the Fed still relies on data and may equally easily pivot to a 25 basis point cut."

Cameron Dawson, Chief Information Officer at NewEdge Wealth: "The Fed's support and signs of continued economic growth in the U.S. have buoyed the stock market. This is a favorable backdrop for the broad stock market, including cyclical industries benefiting from stronger growth, and rate-sensitive industries benefiting from a declining yield environment."Chris Murphy, Co-Head of Derivatives Strategy at Susquehanna International Group:

"Material and cyclical stocks are leading the way, while defensive stocks are underperforming. I expect this trend to continue, with defensive industries lagging behind and cyclical industries taking the lead."

Garrett Melson, Portfolio Strategist at Natixis Advisors LLC:

"Given the very tight real interest rates and the entry into a restrictive area, it is reasonable for a pre-emptive easing policy to move more quickly towards neutrality. A 50 basis point rate cut would send a loud and clear message, and I believe this signal is key to the market. Powell's policy is favorable for the labor market, which will ultimately support risk appetite."