Federal Reserve delivers jumbo rate cut

The Federal Reserve acted decisively in starting its easing cycle with a 50 basis point cut, taking its policy rate down to a range of 4.75 to 5%.

Monetary policymakers expect to deliver 100 basis points of easing in total this year if the economy unfolds in line with their expectations. That’s not far off the 117 basis points worth of rate cuts that traders envisaged as of the close on Tuesday.

“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” according to the central bank’s statement announcing the decision.

Greater concern about the state of the US job market appears to have prompted central bank officials to act aggressively. Back in June, the median monetary policymaker thought the US unemployment rate would be at 4% at the end of this year and 4.2% at the end of 2025; those estimates were revised to 4.4% for both years.

In the minutes ahead of the decision, markets had priced a 50 basis cut as only slightly more likely than a smaller one. Most economists, on the other hand, had pencilled in a 25 basis point cut.

Small cap stocks ripped higher, with the Russell 2000 up 1.6% in the minutes following the release. The S&P 500 and Nasdaq 100 have had a positive, but more muted, response. Risk assets are paring their gains ahead of Fed Chair Jerome Powell’s press conference.