Fed Cuts Rates By 25bps; Powell ‘Bends The Knee’, Signals Dovish Path Ahead

Tl;dr: Nine months after it last adjusted rates, The Fed finally bent the knee this afternoon and cut rates by 25bps (as fully priced in by the market).

Only once since it started publishing its target rate in the 1970s had The Fed waited longer. That was 2001-2002 when, unlike now, it was a bear-market low, consumer spending was weak, and inflation was below target.

The Dot-Plot suggests The Fed members are also shifting in a dovish direction (narrowing the gap with the market) with 50bps more now set for 2025.

There was only one dissenter, newly appointed Stephen Miran who wanted a 50bps cut.

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Since The Fed’s last meeting (July 30th), a great deal of catalyzing events have occurred – from massive downward revisions to the so-called ‘strong’ labor market to a continued lack of (hyper) inflationary pressure from tariffs; and from a decline in geopolitical uncertainty and trade policy uncertainty offset by a much-decried by MSM rise in fears over Fed ‘independence’.

The economic data has pumped and dumped in the ensuing weeks…

Source: Bloomberg

But we do note that ‘inflation’ has surprised to the upside since the last FOMC (while the labor market has dramatically surprised to the downside)…

Source: Bloomberg

Gold has been a dramatic outperformer during the interim period with some weakness in the dollar and crude oil prices (Israel-Iran tensions eased) plunging most. Bonds and stocks are up since the last FOMC meeting…

Source: Bloomberg

Rate-cut odds dipped after the last FOMC meeting only to surge on two weak payrolls prints, pricing in fully a 25bps today (and high likelihood of another cut in each of the remaining FOMC meetings this year)…

Source: Bloomberg

Expectations for cuts in 2025 have risen notably since the last FOMC meeting (from ~2 cuts to ~3 cuts) while 2026 expectations are only very modestly more dovish)…

Source: Bloomberg

And before we get the headlines, bear in mind that the market is dramatically more dovish than the current (old) dots from The Fed. Today we get a refresh that will likely see the median dots decline (dovishly)…

Source: Bloomberg

As we noted earlier, today’s meeting has the potential to be explosive with multiple dissents (both hawkish and dovish).

So What Happened…?

As fully priced-in, The Fed cut rates by 25bps today

• *FED CUTS TARGET RANGE FOR BENCHMARK RATE TO 4%-4.25%

One dissent only:

• *FED SAYS GOVERNOR MIRAN DISSENTS IN FAVOR OF HALF-POINT CUT

Fed warns:

• *FED SAYS DOWNSIDE RISKS TO EMPLOYMENT HAVE RISEN

The Dots shifted dovishly…

• *FED MEDIAN PROJECTION SHOWS 50 BPS MORE RATE CUTS IN 2025

Read the full redline below:

Developing…