The Fed Cut Rates

The Federal Open Market Committee (FOMC) cut the Fed Funds rate by 25 bps down to the new target range of 2.00% to 2.25%.  This is what the global marketplace was expecting as the most likely event.  From this rate cut, one would think that the U.S. equity markets would rise with joy.  Instead, the market sold off with the Dow Jones Industrial Average off 300 points from its intraday high.  This sell off comes from comments made by Fed Chairman, Jerome Powell. He said, “We’re thinking of it essentially as a midcycle adjustment to policy… I’m contrasting it here with the beginning of a lengthy cutting cycle.”  In other words, the Fed Chairman just announced to the world that future rate cuts are not obvious.

As of yesterday, the Chicago Mercantile Exchange Fed Funds futures were forecasting an additional rate of 25 bps at the September FOMC meeting.  By market close today, the market is now forecasting that Fed Funds will remain at the new target range of 2.00% to 2.25%.  In a strong reversal, the market went from a 54% chance of another 25 bps rate cut in September to a 0% probability. 

Words are important… especially when the Fed Chairman speaks.  We will continue to provide you with updates on the current state of interest rates.


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