US | Fed cuts rates by 25 bps, signals more to come

Summary

Powell described today’s move as “a risk-management cut,” with rising downside risks to the employment mandate making it appropriate to resume “moving in the direction of neutral.”

Key points

• Key points:
• The Fed delivered a widely expected 25bp rate cut to 4.00-4.25%, with only one dissent from newly appointed Gov. Miran, who unsurprisingly favored a 50bp cut.
• The Summary of Economic Projections showed growth forecasts edged up for this year and next, while those for inflation and unemployment were largely unchanged.
• The dot plot continued to show a split within the FOMC, with a majority now indicating that two more cuts this year in October and December are likely.
• Powell reiterated a “meeting-by-meeting” approach, but said that balanced risks mean the Fed “should move in the direction to neutral”—a clear signal of further cuts.
• Taken together, today’s messages raise the probability of a second cut in a row in October and tilt our baseline scenario toward two additional cuts this year.

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