The Federal Reserve cut its key interest rate for a third-straight meeting, reducing it to a range of 4.25% to 4.5%. The move was in line with market expectations and is expected to provide moderate relief from high rates for borrowers.
However, the Fed’s comments on policy uncertainty related to President-elect Trump’s plans for tax cuts, tariffs, and an immigration crackdown have raised concerns among markets. Fed Chairman Jerome Powell said that this uncertainty provides another reason for the Fed to move slowly in further cutting rates.
Despite Powell’s soothing words, the S&P 500 fell sharply on Wednesday, down 2.95% as the worst drubbing in four months. The index is now below its Dec. 6 all-time closing high and has declined by 3.6% since the start of the year.
Treasury yields jumped after Powell’s talk, with the 10-year yield increasing to 4.49%, the highest close since May 31. Markets are now pricing in a year-end federal funds rate of 3.75% to 4%, down from previous expectations.
Powell has stated that the Fed will not consider the implications of Trump’s agenda for monetary policy until it becomes clear what those policies are. He also noted that some policymakers included assumptions about Trump’s policies in their economic and rate projections, while others did not.
The Fed’s economic outlook for next year is relatively ho-hum, with 2.1% GDP growth and 4.3% unemployment. However, if the economy outperforms, still-elevated inflation will keep the Fed on guard, barring labor market weakness.
Market analysts now see the Fed on hold until at least May and possibly June, with odds of a January rate cut falling to 6% and a March rate cut shrinking to around 40%.
Source: https://www.investors.com/news/economy/federal-reserve-meeting-december-rate-cut-jerome-powell-trump-sp-500