- The Federal Reserve delivered a 50bp interest rate cut at its policy meeting yesterday. Leading up to the announcement the market was split on the size of the reduction, and the 50bp move is seen as an attempt to ensure that the US economy achieves a soft landing. Chairman Jerome Powell justified the larger reduction, saying, “The labor market is actually in solid condition, and our intention with our policy move today is to keep it there.” He added, “To me, the logic of this – both from an economic standpoint and also from a risk-management standpoint – was clear.” Some analysts had previously felt that the Fed was behind the curve and should have cut sooner and suggested that the larger reduction was a move to catch up. In his press conference, Powell said, “We don’t think we’re behind” adding, “You can take this as a sign of our commitment not to get behind.” The central bank’s updated projections indicated 100bp of cuts in 2024 and 2025, consistent with a downshift to reductions of 25bp increments going forward. The market is expecting further cuts of 25bp in November and December, but officials will be closely monitoring both inflation and labour market stats in the coming months to decide if further tweaking is needed.
- After rallying yesterday to within touching distance of 1.33 overnight, the pound is consolidating ahead of today’s BoE policy meeting. The MPC is likely to decide against cutting rates for a second straight meeting, with rate setters widely expected to maintain a patient approach in their reduction cycle. A November reduction is more likely, and markets will be looking for clues from Andrew Bailey’s press conference should officials decide to maintain policy. Yesterday’s above consensus service inflation print may prompt MPC voters to decide to pause and wait for another set of data before deciding to continue with reductions.
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