Fed Cuts Key Rate By 25 Bps As Expected, But Hints At Fewer Rate Cuts Next Year: Retail Sentiment Mixed

The central bank has also increased its projection for the change in real GDP for 2024 to 2.5% compared to 2% projected in September. However, it has maintained its projection of 1.8% for the longer term.

The Federal Reserve delivered the much-anticipated 25 basis point rate cut on Wednesday, bringing the Fed Funds rate down to 4.25%- 4.5%, levels seen in December 2022.

Although this is the third consecutive rate reduction since the central bank started easing the rates this year, the policy came with a cautionary tone. Cleveland Fed President Beth M. Hammack was the lone dissenter, preferring to maintain the target range for the federal funds rate at 4.5% to 4.75%.

Wednesday’s development brings the total rate reduction to 1% this year. According to a CNBC report that cited the dot plot matrix of the Fed, the central bank has indicated 2025 will witness only two more rate reductions.

The central bank has also increased its projection for the change in real GDP for 2024 to 2.5% compared to 2% projected in September. However, for the longer term, it has maintained its projection of 1.8%.

Unemployment rate projections have been brought down to 4.2% compared to 4.4% projected in September. The Fed has also raised its PCE inflation expectation to 2.4% for 2024, marginally higher than the 2.3% projected in September.

Core PCE inflation expectations stand at 2.8%, slightly higher than the earlier expectation of 2.6%.

Following the policy announcement, benchmark U.S. indices sold off, with the S&P 500 falling 0.66% and the Nasdaq Composite sliding 0.72%.

According to CNBC, the Dow is set for its first 10-day losing streak since 1974 following the Fed’s hint of fewer rate cuts next year.

The SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust, Series 1 (QQQ) were trading lower, with retail sentiments ranging from ‘bullish’ to ‘neutral.’

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