The Federal Reserve finally cut interest rates, and Wall Street didn’t know what to do with itself.
The S&P 500 dipped 0.1%. The Dow Jones Industrial Average rose 260 points, or 0.6%. The Nasdaq Composite fell 0.3%.
The major indexes initially spiked after the Federal Open Market Committee said it decided to lower the federal-funds rate by a quarter of a percentage point to a target range of 4% to 4.25%. Stephen Miran, one of President Donald Trump’s top economic advisors who joined the central bank this week, dissented, preferring a half-point cut to between 3.75% and 4%.
The yield on the 2-year Treasury note rose to 3.55%. The 10-year yield rose to 4.07%.
“Recent indicators suggest that growth of economic activity moderated in the first half of the year,” the central bank said in its statement. “Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated.”
Central bankers forecast two more quarter-point cuts through the end of the year, according to the Summary of Economic Projections. Of course, Fed Chairman Jerome Powell emphasized they are simply forecasts, and the economic data ahead will determine the path forward on rates.
Powell spent nearly an hour speaking and taking questions from reporters. He stepped around questions about Trump’s efforts to exert his influence over the Fed.
“While the Fed maintained that ‘inflation has moved up and remains somewhat elevated’ in the press statement, this time it added that ‘downside risks to employment have risen,’ and that was brand spanking new,” writes Rosenberg Research’s David Rosenberg. “The Fed is adjusting policy, even with inflation above target, based on the other part of the mandate — employment conditions. And, at a time when the funds rate is still quite a bit above the so-called neutral rate (around 3.0%).”
In the wake of the decision, traders see an 82.6% chance of two more quarter-point cuts through December. Odds of just one quarter-point cut were at 15.7%, while odds of three quarter-point cuts are at 1.1.%, according to the CME FedWatch Tool.
“We thought that Chair Powell’s characterization of an uncertain, and potentially deteriorating, forward labor market, while still recognizing some near-term inflation pressure, was clearly justified and re-initiating the rate cutting process made a good deal of sense,” writes Rick Rieder, BlackRock’s chief investment officer of global fixed income. “We think that moving the Funds rate further down will also be part of this plan, and we anticipate another two [quarter-point] cuts this year and probably a continuation of at least a moderate rate cutting cycle next year as well.”