Fed cuts, revises dot plot, markets still want more
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What was the market’s immediate reaction to the Fed’s 50‑basis‑point rate cut?
So the Fed did go for the big one with a sharp market response. We saw a rising dollar, big falls in frontend bond yields, the SP higher, gold hitting a new record high as well. But a lot of that retreated by the time we got around to the press conference. So we'll look at what the decision was, what was said afterwards, and what will the Bank of England do now with inflation not really moving down? And today, New Zealand GDP and Australian employment numbers. That's all. Is that enough? It's Thursday.
Well a big fall in the US dollar as the Fed announced that fifty basis point cut. It fell naught point six percent on the news, but now it's up almost naught point two percent on the day. So a complete turnaround, and we've seen that a lot in the markets uh in this morning. Elsewhere, the pound is up naught point three percent, the euro and the Aussie and the yen, little moved on the day, but up obviously when the US dollar fell so much uh around the time the Fed made the announcement. The Aussie dollar now a little below. 67.6 US cents. It has been a choppy response on the share market as well. The SP was up three quarters of one percent on the news, hitting an all-time high, just 0.3% higher at the close.
The Dow down a quarter percent. The Nasdaq down 0.3% at the close. The Russell 2000 that was up two percent has lost all of that and is just in the green at the close this morning. And bond yields are markedly higher for Ten year yields, curiously, up six basis points for ten year treasuries, up eight in the UK, five in Germany, but two year treasury yields lower. Not that much though. They were down eight or nine basis points on the news from the Fed, but now just one basis point lower. And oil is down. WTI has lost one point seven percent, Brent down one point two percent below seventy-three a barrel. Gold shot up on the Fed announcement, it got over two thousand six hundred, a sharp one point two percent rise.
That is all gone now, and gold is actually down by naught point six percent. So what a topsy turvy kind of a day. Nabsgaring trend has been watching it all from London. So the Fed did go for fifty basis points, and it's the job markets that has them worried.
How did the Fed’s post‑meeting statement describe the labor‑market outlook?
Front and centre, the statement from the FOMC today said job gains have slowed and the unemployment rate has moved up, but remains low. And they have upped their forecasts for Unemployment. So how do you think it was how do you think it was played? I mean they were tr uh clearly in the press conference trying to downplay the idea that this is an outsized move, uh you know, nothing to worry about, the economy's not in a bad state. I mean it was all about that, wasn't it? That this is It was. It was finding finding the right pace, basically. It's finding the right page.
Yeah, I mean, okay, like so so fifty basis points off. Look at the the dots. I mean, these are not forecasts, these are the independent estimates of each individual F O M C member. It's not Fed policy. Uh but of course the market, you know, obviously puts a lot of store in that. So uh it's the m it's the combined message of the rate move plus what do the dots say where the best guesses are you know from the FOMC for for for for the Fed funds rate over the next few years. End of twenty four, another fifty basis points on top of the fifty today. So that takes the policy rate down to four point three seven five on the mid rate and then another. Another hundred basis points in twenty twenty five to three point three seven five and then a further fifty in twenty twenty six, which would take you down to two point eight seven five, two point nine, you know, which we assume is the longer run rate and
Whatever the neutral rate is which you know, But you know, the further
further you further we go out the l the less useful that becomes, of course. But I mean that that for this for this year, just for the next few meetings, next couple of meetings and this meeting, put it all together, and they are now saying, Well, we expect it to be what the markets have been forecasting.
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Chapters
8 chapters
1
What was the market’s immediate reaction to the Fed’s 50‑basis‑point rate cut?
0:01–2:03
2
How did the Fed’s post‑meeting statement describe the labor‑market outlook?
2:03–4:35
3
Why is services inflation a growing concern for the Fed and global markets?
4:35–6:59
4
How does the Fed justify its policy shift by saying inflation risk is now balanced?
6:59–9:03
5
How did recent US CPI and retail‑sales data shape market expectations before the Fed cut?
9:03–11:18
6
What do the latest Australian employment figures reveal about the labour market?
11:18–13:12
7
Why might the Bank of England struggle to cut rates despite modest inflation trends?
13:12–15:39
8
What are the expectations for New Zealand’s Q2 GDP growth and its regional impact?
15:39–18:37