Summary
The Fed wrapped up the Open Market Committee meeting and, as expected, cut the federal funds rate by another 25 basis points. The Fed Funds target rate is now 4.25%-4.50%. This was the third cut in the rate-cutting cycle, which began in September after the central bank aggressively raised rates in 2022 and 2023. Three meetings, three reductions. But based on the forecasts released along with the rate decision, it appears the Fed will refrain from aggressive rate cuts in the coming months. While the Fed has clearly shifted its focus from solely fighting inflation, it is not yet able to fully focus on stimulating the economy. CPI inflation has fallen from values above 9.0% to values below 3.0% – but has recently failed to continue its downward trend towards the central bank’s 2% target. Meanwhile, the unemployment rate is still historically low and GDP growth has been averaging around 3.0% for several quarters. The economy has no urgent need for lower rates. Yet. The market’s reaction to the Fed’s signals indicates that investors and traders are becoming more concerned that the current high level of interest rates will push the economy closer to a recession. As far as we are concerned, that does not have to happen