Are We There Yet? Yes, But “There” Has Moved

Today’s Fed announcement and subsequent press conference by Chair Powell was a textbook case of well communicated policy. Basically, the Fed announced a 0.25% rate cut and indicated “that’s it” for this round of cuts. And markets didn’t freak out as they usually do when the punch bowl is being taken away. This “mid cycle adjustment” consisted of 3 rate cuts (July, September, October), the first rate cuts in a decade. Today’s Fed statement removed the key phrase “will act as appropriately to sustain the expansion” That may have roiled markets, but Fed Chair Powell then said the words that soothed markets worldwide: “I think we would need to see a really significant move up in inflation, before we would consider raising rates”. With worldwide inflation basically “stuck” at about 1.0-1.5% (well below the 2% Fed target), this basically provided a “ceiling” at today’s short term rate of 1.5%. It also helped pushed 2 year treasury bonds down to 1.60%, further “un-inverting” the yield curve back to a normal shape. Well done Mr. Powell – the 10 year closed at 1.78%. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners