Despite initial rally, major US stock indexes closed lower after Fed officially began its policy easing cycle with a 50bps rate cut, bringing the target range to 4.75-5.00%. While some may attribute the late selloff to the classic “buy the rumor, sell the fact” dynamic, Fed Chair Jerome Powell’s press conference and the new economic projections pointed to a more cautious pace ahead. These suggested that Fed’s bold move was more about catching up from July’s inaction rather than setting an aggressive pace for future cuts.
Powell acknowledged that Fed “might well have” started lowering rates back in July if the employment data had been available earlier. He emphasized that the 50bps cut was “a sign of our commitment not to get behind” the curve in normalizing rates, calling it “a strong move.” Additionally, he was quick to clarify that this cut is not indicative of a “new pace,” stating, “The economy can develop in a way that would cause us to go faster or slower.”
The updated dot plot also revealed a divided Fed. Of the 19 participants, 10 penciled in another 50bps cut by year-end, bringing rates down to 4.25-4.50%, while 9 saw only a 25bps cut to 4.50-4.75%. This suggests Fed would revert to smaller cuts in the coming months, with November likely seeing a 25bps reduction, followed by another 25bps cut in December, or even a few cuts if inflation risks persist.
This sentiment is reflected in market pricing, with fed funds futures currently indicating around 70% chance of a 25bps cut in November and 30% chance of a larger 50bps move.
Technically, while S&P 500 struggled to sustain above 5669.67 key resistance, and some retreat might be seen in the near term, outlook will stay bullish as long as 5402.62 support holds. Sustained trading above 5669.67 will extend the long term up trend to 61.8% projection of 4103.78 to 5669.67 from 5119.26 at 6086.98 later in the year.
