After keeping their policy rate unchanged since July of 2023, the US Federal Reserve finally cut interest rates by 0.50% today. While the typical Fed rate increment is half the amount, expectations heading into this decision were evenly split between 25 and 50 basis points, so the market was not caught off guard. What was rather unusual, however, was the dissent of Fed Governor Bowman, who argued for a 25bp cut. This marks the first Governor’s dissent since 2005.

The so-called “dot-plot” of policy rate projections by the members of the FOMC showed a lower median forecast in 2024 and 2025 than was expected. However, it is worth noting that these projections are effectively split down the middle, as 9 of the 19 members see one 25bp cut or less for the remainder of the year while the slim majority see 50bp or more worth of cuts. It is becoming clear that a lack of consensus on the FOMC is building.

During the press conference, Fed Chair Powell effectively rationalized this large move with the need to “catch up” to both recent data (weakening employment and improving inflation indicators) as well as to other central banks that had started cutting much sooner (ECB, BoC, BoE, SNB, amongst others). He implied that this cut was also a preemptive measure, stating that “the US economy is in a good place, and our decision today is designed to keep it there.” That said, he was also careful not to come off too dovish. “No one should look at this and see this is the new pace,” he added. 

The initial market reaction saw the USD touch lows not seen since the start of the year, gold touch an all-time high of $2,600/oz, Treasury yields sell off, and US equities rally. At the time of this posting, all of those moves have now fully retraced, with the USD in particular hitting the high of the day against a basket of currencies.