(Bloomberg) — Traders increased their bets on further easing of monetary policy by the Federal Reserve, and the dollar weakened slightly after the Federal Reserve cut interest rates by half a percentage point for the first time in four years.
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This ended weeks of speculation about whether the Fed would begin its easing cycle with a quarter or half a percentage point cut. Immediately before the decision, traders had estimated that both scenarios had roughly equal chances.
“This is not just a 50 basis point cut, this is a moderate 50 basis point cut,” Mohamed El-Erian, a Bloomberg Opinion columnist and president of Queens’ College, Cambridge University, said on Bloomberg Television. “My question is what has changed since July when they decided not to cut rates, and now there is this very aggressive cut and aggressive signals.”
This is what others on Wall Street say:
Phil Mesman, portfolio manager at Picton Mahoney Asset Management
“A 50 basis point cut is a reasonable precaution against further deterioration in the labor market, as inflation risks have abated. Moreover, the cut is not an unreasonably aggressive first step, as inflation risk appears less problematic.”
Nathan Thooft, senior portfolio manager at Manulife Investment Management in Boston
“The fact that the dot chart does not suggest further 50 basis point moves reinforces the notion that this is a start and a proactive measure, rather than a trend toward further 50 basis point moves and a worrying economy. It also probably suggests that they regret not starting with 25 basis points at the last meeting.”
Keith Lerner, chief market strategist at Truist Financial:
“We still view this as a market-friendly cut and would not be surprised to see stock prices rise as investors process this news. We believe the cut is more a reflection of the Fed starting from a very hawkish level and inflation moving toward its target. It is the right move by the Fed.”
Paresh Upadhyaya, Director of Fixed Income and Currency Strategy at Amundi, USA:
“The market has been pushing the Fed to cut rates by 50 basis points. While markets may be willing to price in another high probability of a 50 basis point rate cut, the changes in the statement suggest that the Fed remains data-dependent and could just as easily switch back to 25 basis points.”
Cameron Dawson, CIO at NewEdge Wealth:
“Equities are benefiting from this backdrop of a supportive Fed and signs of continued robust U.S. economic growth. This is a supportive backdrop for broad equities, including cyclical areas that benefit from stronger growth and interest rate-sensitive areas that benefit from the declining yield environment.”
Chris Murphy, co-head of derivatives strategy at Susquehanna International Group:
Commodities and cyclicals are leading, while defensives are underperforming. I expect this trend to continue, with defensives lagging and cyclicals leading.
Garrett Melson, portfolio strategist at Natixis Advisors LLC:
“With real interest rates low and well into restrictive territory, it makes sense to bring forward easing measures to return to neutral territory more quickly. A friendly 50-point index sends this message loud and clear and is, in my view, the key signal for the markets. The Powell put is in play for the labor markets and that ultimately supports risk appetite.”
Steve Sosnick, chief strategist at Interactive Brokers LLC:
“Equity markets have gotten what they wanted, at least for now. I find it interesting that the third paragraph mentions ‘balance of risk’ twice. So perhaps we should know more about the relative balance, but overall the message is certainly dovish. The question now is how much of this has been priced into a market that had already been up for seven days in a row.”
Helen Given, foreign exchange trader at Monex Inc.:
“The yen is obviously a big winner in all of this, as the interest rate differential is now much smaller. The dot plot is the bigger story. The Fed still expects less easing this year than traders, which is why we’ve seen the dollar’s initial decline reverse.”
Dave Mazza, CEO at Roundhill Investments:
“The FOMC voted to cut interest rates by 50 basis points, in line with recent expectations. This cut addresses the Fed’s concerns about employment, which should bode well for risk appetite in the near term. While this measure is decidedly dovish, investors will be waiting for Powell’s words in the press conference to gauge the extent of this restraint, especially given that inflation, while improving, is still far from the target.”
Kevin Gordon, chief investment strategist at Charles Schwab & Co.:
“The most important part is the change in the statement, which is intended to show how much focus is now on the labor market. It is clear that Fed members see greater downside risk in wage growth, but they also know they have plenty of room to scale back restrictions.”
– With support from Natalia Kniazhevich, Carter Johnson, Elena Popina and Geoffrey Morgan.
(Updated with further comments)
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