Fed Lowers Interest Rates: What Key Points Were Highlighted in the Statement?

image

Fed Lowers Interest Rates: What Key Points Were Highlighted in the Statement?

The Federal Reserve (Fed) met expectations in the market by lowering the policy interest rate by 25 basis points during yesterday's Federal Open Market Committee (FOMC) meeting. The statement indicated that the risks to employment and inflation targets are balanced. Noting the uncertainty in the economic outlook, the committee emphasized their caution regarding the risks to their dual mandate of maximum employment and price stability. It was noted that this reduction marks the second consecutive rate cut following prolonged restrictive policies.

Fed Chairman Jerome Powell stated in a post-decision announcement that future interest rate decisions will focus on macroeconomic data and that they aim to manage the risks of either a rapid or slow approach in a balanced manner. Powell indicated that they are getting closer to the 2% inflation target, while also mentioning that core inflation remains high. Additionally, he stated that interest rate decisions will be assessed separately at each meeting, providing no definite signal regarding a potential rate cut in December.

Markets Calm After Fed Decision Following the Fed's 25 basis point rate cut, global equity markets experienced a positive atmosphere with high-volume buying. In statements regarding the labor market, it was noted that while the workforce market has loosened, the unemployment rate continues to remain low. Powell emphasized that the economy is on a solid expansion path and that consumer spending contributes to growth.

U.S. interest rate futures have priced in further rate cuts by the Fed in December and in 2025. According to LSEG calculations, interest rates are projected to decrease by an additional 67 basis points by 2025. This situation shapes the expectations of investors and market participants regarding future monetary policies.

Barclays Revises Fed and BoE Forecasts Barclays expects the Federal Reserve to lower interest rates only twice by 25 basis points in 2025. Their previous forecast indicated three rate cuts. The bank anticipates that the Bank of England (BoE) will keep interest rates steady at its December meeting, reversing previous views that a cut would occur. Barclays' forecasts reflect the uncertainty of central banks regarding future monetary policies and market expectations.