FOMC Lowers Interest Rates, Focuses on Labor Market

Federal Reserve Chairman Jerome Powell has made a decisive announcement today regarding a significant rate cut since the Federal Open Market Committee (FOMC) has lowered the target range of the federal funds rate by 50 basis points from the previous month’s target it has now set at 4.75% to 5.0%. FOMC meeting also came out with a tout on the labour markets that is a clear manisfestation of the Fed’s ever evolving and pursuing goal of maximum employment.

Certainly, their understanding of the situation was that inflation is moving towards the target of 2%, even if more slowly than what was planned. Powell himself mentioned that the labour market “has continued to cool” and “is less tight” than at the area’s fever peak of 8% relative compared to the present environment.

More cuts come immediately

Current views reveal that the FOMC in 2023 expected some members signaled prospects of still lower rates providing a further relaxation in order to allow growth to be achieved in 2023. The committee forecasts a lowering of interest rates by an extra 100 basis points, as opposed to June’s 25 basis point forecast, prior to the end of 2024. Up to 200 basis points may be the total rate cut above extending to peripheral of 2025 from initial previous estimates of approximately 125 basis points.

The long-term dot was also raised slightly and sits pegged at 2.875%. For all his efforts though, Powell stressed in his press conference that the Fed will be judicious and data dependent in its rate decision strategy going forward. He was emphatic that future releases of non-farm payroll figures will be instrumental in informing monetary policy.

The Fed, for example, restated its readiness to promote activities as much as possible so as to reach maximum employment and keep inflation rates at or near 2% for the foreseeable future. It also stated that the economy continues to grow at a steady rate.

Market Reaction

Different markets reacted in different ways for the impact of the analysts’ outlooks on the Fed’s position. Following the announcement on September 18, U.S. equities advanced sharply with stock market intraday peaks achieved, however, close of business the S&P 500 had lost 0.29%, Down 0.25% of the Dow Jones Industrial Average and by 0.31% of Nasdaq.

The following day which was Thursday, the bears seemingly tamed the bulls more readily than in previous days. Implicit with the features in the market is the S&P 500 futures contract that was 1.5% higher as people were feeling good about the prospects even as there was still a lot of ambiguity concerning how the rate cuts if any in the future would be done.

So continues the cycle of lending and borrowing which is the ordinary future for both the state of the market and economic conditions as 2024 pans out.