Economy

Markets Were Ready to Properly Assess Last Week’s Rate Cut, Says Reuters

By Michael S. Derby

NEW YORK – A central bank official at the New York Federal Reserve remarked that financial markets are well-positioned to interpret a larger-than-expected interest rate cut not as a signal of impending trouble, but rather as a strategic adjustment.

Despite futures markets not fully accounting for the recent half-percentage-point rate cut enacted by the Fed, insights gathered by the New York Fed suggested that investors would likely view this 50-basis-point reduction as a recalibration of the Federal Open Market Committee’s policy. This shift aims to adopt a more neutral stance, which is intended to sustain economic and labor market strength while facilitating further progress in managing inflation.

In the previous week, the Fed, faced with easing inflationary pressures and increased risks to employment, reduced its overnight target rate range to between 4.75% and 5.5%. Additionally, the Fed projected the potential for further cuts totaling 50 basis points by the end of the year.

Leading up to the Fed’s meeting, concerns arose that a rate cut larger than expected might indicate central bank anxiety about future conditions. However, the action turned out to be a move towards alleviating unnecessary restrictive policies within the economy.

The Fed also reiterated its commitment to continue reducing its balance sheet. The official emphasized that market indicators have long suggested that participants understood there was no direct connection between interest rate decisions and balance sheet strategies.

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