Market Digest: Shifting Gears After the Fed’s 50‑bp Cut
Markets are still catching their breath from the Fed’s bold 50‑basis‑point (bp) move this morning, while investors are already eyeing the day’s choices from the BoE and Norges Bank.
What’s Happening Now?
- The Fed trimmed rates by 50 bp—big news that felt like a “calibration” tweak rather than a hint at more cuts.
- Stocks bounced overnight: the S&P 500 and Nasdaq futures up over 1%, turning the day toward an upside swing.
- Despite the Fed’s warning that 50‑bp cuts are not the new normal, the USD OIS curve is pricing a 70 bp easing run‑in toward year’s end—almost an extra full cut beyond the Fed’s dot‑plot.
Behind the Numbers
The big question: why the Fed? Inflation remains high, unemployment sits at 4.2%, and the economy is still swimming in strong growth (2%+ in most recent quarters). The shift seems driven by small tweaks in unemployment forecasts (+0.4 pp) and core PCE projections (‑0.2 pp). If you trust the Fed’s outlook, the 50‑bp cut makes sense. If you think they’re overly cautious—well, I do—then it feels like a bit of overkill.
Market Reactions
- Equity and Treasury demand spiked at the announcement, but the pullback in the U.S. dollar and “greenback” strength followed quickly.
- The DXY ticked back to 101, while the euro stayed on its rebound, and the greenback tightened after a brief double‑digit rally.
- A key takeaway: the Fed is still in a “move‑quickly” stance; more cuts feel possible if the economy turns upside‑down.
Looking Ahead
The day’s policy shuffle is rolling on:
- Bank of England—MPC keeps the Bank Rate steady at 5% in a 5‑4 vote, but cuts are off the table this round due to rising CPI numbers.
- Potential Quantitative Tightening—they might keep the current £100 billion per annum pace, though the balance sheet shrink could step up if they want to manage gilt redemptions.
- Norges Bank—rates stay at 4.50%. The OIS curve already prices in a single 25‑bp cut by year‑end, so nothing too dramatic is likely.
- Domestic data—US jobless claims, existing home sales, and the Philly Fed’s outlook will be on the desk, but nothing that’s expected to shift the markets dramatically.
Bottom line
We’re plugging in the big moves, balancing news, and watching which of the central banks hands the next stick. For now, rates are at a tentative plateau with the possibility of a rapid re‑roll if the job market weakens a bit.
