The Fed initiates rate cutting with a 50 bp step

Fed cuts rates by 50 basis points...

The Fed cut the federal funds rate today by 50 basis points, bringing the target range to 4.75% – 5.00%. This means that the Fed is leaving the rate peak after 14 months. The consensus of the economists surveyed had expected only a 25 basis point rate cut by a large majority (we did too), whereas the financial market had given a much higher probability to a larger interest rate move. The Fed apparently did not want to disappoint this expectation. For the first time in a while, there was one dissenting vote; Governor Bowman argued in favor of a smaller interest rate move of 25 basis points. Dissenting votes from the ranks of the governors are rare.

According to the statement published after the meeting, the Fed has now gained greater confidence that inflation is moving sustainably towards the 2% target. This change is hardly surprising, as the Fed has always cited this as a prerequisite for a rate cut. Otherwise, the risks to the two parts of the Fed's mandate – maximum employment and price stability – are now roughly balanced (previously, inflation risks were weighted higher).

For full text see attached PDF-Version.