Hello,

 

For the first time in four years, the Federal Reserve has cut interest rates, opting for a 0.5% reduction. Opinion had been roughly split as to whether policymakers would cut rates by a quarter point or a half point. This latest decision by the US Federal Reserve is expected to be well-received by the markets. However, with the next decision scheduled for November 7th, just after the Presidential Election, further rate cuts and the possibility of a soft landing will be much debated.

 

The Fed acknowledged that they were lagging, especially concerning the labor market, and chose to catch up by implementing a larger-than-expected cut, partially compensating for the delay in starting the rate reduction cycle. More on this below.

 

One key lesson from recent years is that the US economy is less sensitive to interest rate changes than previously believed. The effectiveness of a 50-basis point rate cut will be interesting to observe. Nonetheless, Fed officials remain confident that adjusting interest rates will help achieve stable nominal growth and a strong labor market. Wednesday’s decision is likely to influence other central banks, many of which have already begun cutting rates.

 

As always, if you wish to discuss anything in further detail, please do get in touch.