The Fed delivered the rate cut that was discounted by futures, but still managed to surprise markets with 50 bps. Powell has been communicating ad nauseam that the Fed is data dependent, and yet there hasn’t been any material change in inflation or unemployment (after adjustments), from June to September to justify an aggressive move, particularly when it’s so close to Election Day. This aggressiveness has brought some indigestion to the market as investors are now thinking there might be something else, that is very important, that is deteriorating rapidly. Furthermore, the dot plot, pictured below, shows an additional 50 bps cut for the remainder of the year and a full additional point for 2025. Futures are up this morning (1-2%), the yield curve is steepening (11bps between 10’s and 2’s) and the U.S. dollar index is too close to 100. A new cycle has officially begun.
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