First Fed cut is a slash

The Federal Reserve cut the fed funds rate by 50 basis points, reducing the target range from 5.25-5.50% to 4.75-5.00%. Market expectations had indicated a likelihood of either 25 or 50 basis-point cuts.

The Summary of Economic Projections indicated a downward revision in the short-term rate outlook, with year-end 2024 and 2025 rates adjusted to 4.375% and 3.375%, respectively, while the long-run rate estimate increased slightly to 2.9%. This move reflects the Fed's confidence in controlling inflation, revising the core PCE inflation forecast down to 2.2%.

Fed Chair Jerome Powell emphasized the need to maintain a solid labor market and prevent recession, suggesting that aggressive cuts may support economic strength. Governor Michelle Bowman was the sole dissenting voice, advocating for a smaller reduction.

The yield curve steepened in response to the decision, and the Fed's balance sheet reduction is ongoing, likely to slow later this year.