Why didn't stock prices rise today? Why didn't the 10-year US Treasury bond yield fall below 4.00%? Why did the price of gold slip? The financial markets had clearly already fully discounted today's 25-basis-point cut in the federal funds rate.
In addition, the FOMC's Dot Plot wasn't as dovish as some market participants might have expected. Seven of 19 meeting participants expected no further rate reductions this year, and two more expected only one more cut. And they show that most Fed officials don't expect to make many more reductions next year under their current outlook for solid—if somewhat slower— economic activity.
Furthermore, Fed officials presented a united front, suggesting that they are signaling their support for the Fed's independence. Eleven of 12 Fed voters backed the 25bps cut. Fed governor Stephen Miran, who served as a senior White House adviser until his confirmation to the central bank board this week, was the lone dissenter. He favored a larger half-point cut. Even Governors Christopher Waller and Michelle Bowman didn't dissent, as they had at the last meeting, because they both favored a 25bps back then.
In his post-meeting press conference, Fed Chair Jerome Powell remained basically noncommittal about further rate cuts.
- He stressed that future decisions are not on a "preset path" and will be determined on a meeting-by-meeting basis, depending on incoming data.
- While inflation has eased from its highs, it remains "somewhat elevated" above the Fed's 2% target. Powell acknowledged that tariffs are beginning to push up prices in some sectors. He said the Fed's baseline expectation is that these tariff-related price increases will be a one-time event. Still, he emphasized that it is the Fed's job to ensure they do not become a persistent inflation problem.
- Powell highlighted a softening labor market, noting that job gains have slowed and the unemployment rate has edged up to 4.3%. He referred to the current state of the labor market as a "curious balance," where both the supply of workers and the demand for them have declined. Powell attributed some of this slowdown to new immigration policies.
