Stock Market Update

[BRIEFING.COM] The Federal Open Market Committee (FOMC) voted in favor of cutting the target range for the fed funds rate by 50 basis points to 4.75-5.00%. It was not a unanimous vote. Fed Governor Bowman preferred a 25 basis points rate cut.

It is a decision that will be met with both elation and criticism. The larger rate cut should placate participants who think the Fed is behind the curve already in trying to forestall a hard landing. Conversely, it will elicit criticism from participants who think the larger rate cut wasn't warranted given broader economic trends that include an inflation rate that is much improved but still above target at 2.5%. The worry will be that the more aggressive rate cut risks igniting inflation again.

The directive, however, indicated that the Committee has "gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance."

That said, with stock prices at record highs and initial jobless claims -- a leading indicator -- still well below recession levels, it would seem by way of the larger rate cut to get things started that perhaps the Fed sees more of an imbalance than it is letting on. 

Fed Chair Powell will have the opportunity to explain the decision at his press conference that begins at 2:30 p.m. ET, as well as the changes to the Summary of Economic Projections and so-called dot-plot. The former showed an upward shift in the median estimate for the 2024 unemployment rate to 4.4% (from 4.0% in June) and a downward shift in PCE inflation to 2.3% (from 2.6% in June) and core-PCE inflation to 2.6% (from 2.8%). The dot-plot, meanwhile, shows a median estimate for 2024 (4.40%) that implies another 50 basis points of rate cuts this year and another 100 basis points in 2025.

The 2-yr note yield, at 3.64% in front of the release, is at 3.54% now, and the 10-yr note yield, at 3.69% in front of the release is at 3.65% now. The U.S. Dollar Index is down 0.4% to 100.47.

Stock prices have moved higher after the release, albeit in choppy action before the press conference.

The Russell 2000 is up 1.6%; the Nasdaq Composite is up 0.7%; the S&P 500 is up 0.4%; and the Dow Jones Industrial Average is up 0.3%.