Norway, Intermediary
Changechevron_rightSustainable Investing
Stewardship Principles
Investment Solutions
Funds
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
The Federal Open Market Committee (FOMC) cut its target policy rate range by 50 basis points (bps) on September 18, with more than 40 bps having been priced into the market before the meeting. There was one dissenter, Fed governor Michelle Bowman, who preferred a cut of 25 bps. Fed Chair Jerome Powell stated that despite the large cut (the first of any size in four years), the FOMC believes that “the US economy is strong.”
In its statement, the FOMC characterized risks to its inflation and employment goals as “roughly in balance.” Other changes to the statement from the prior meeting seemed intended to reiterate that message. The language regarding the labor market was downgraded to say that job gains have “slowed” rather than “moderated,” and new text noted that the Fed is strongly committed to supporting maximum employment, in addition to returning inflation to target. New language also indicated that the FOMC has gained “greater confidence inflation is moving sustainably toward 2%.”
Median projections for the target range for policy rates outlined in the central bank’s Summary of Economic Projections (the “dots” on the widely watched dot plot) came down by 70 bps for both 2024 and 2025, to 4.4% and 3.4%, respectively. The longer-run dot inched up to 2.9%, but this seems more likely to be a product of material dispersion in these forecasts and changes in the FOMC’s composition, rather than a significant signal.
The Fed’s economic forecasts suggest continued growth amid a backdrop of higher unemployment and lower inflation. The median forecast for real GDP growth is 2% for the calendar years 2024 to 2027, generally little changed from June’s forecasts. However, median forecasts for the unemployment rate moved up for the next two years, while inflation forecasts fell.
Chair Powell’s tone during the press conference was best summarized by his final comment: “I don’t see anything in the economy that suggests the probability of a downturn is elevated.” He repeatedly mentioned that the large cut was intended to preserve economic strength, not respond to economic weakness. Powell largely dismissed concerns about potential acceleration in unemployment, noting that the labor market is “solid” and “close to maximum employment.” When asked about stickiness in shelter inflation, he suggested that the primary driver of housing costs is a supply imbalance, and that despite the lag, the direction of travel in shelter inflation was clearly down.
Despite the larger-than-expected rate cut, Treasury yields across the curve had moved higher by the end of Powell’s press conference, indicating that some market participants had expected the dots to forecast more cuts. Powell’s optimism may also have supported the price action, but the Fed’s stance has changed over the last few months. In July, the Fed maintained its policy rates; yesterday, it cut them more than expected. Since the June meeting, the Fed’s year-end projection for the target range declined by 70 bps, while its projection for the unemployment rate increased by 40 bps.
While the Fed’s assessment of the economy is important, they are imperfect forecasters. History suggests that the risks to the housing and labor markets are more material than Powell’s tone suggests. As always, we believe investors should focus on the data, not the Fed Chair’s read of it.
Expert
What is “the economic cycle,” anyway?
Continue readingBy
Take it “ease”-y
Continue readingCan central bank independence survive?
Continue readingBy
Sahm rules are meant to be broken
Continue readingMultiple authors
Bonds in Brief: Making Sense of the Macro — August issue
Continue readingTime to capitalise on the evolving role of bonds?
Continue readingURL References
Related Insights
Stay up to date with the latest market insights and our point of view.
You've been subscribed
Thank you for subscribing. You can manage your subscription using the links provided in any of our subscription emails.
What is “the economic cycle,” anyway?
See why the relationship between asset prices and the economic cycle is more complex than you might think, why a US recession is unlikely, and what a more dovish Fed could mean for the US and global markets.
By
Take it “ease”-y
Tim Antonelli, Head of Multi-Asset Strategy – Insurance and Portfolio Manager, explains why he thinks insurers should consider locking in current yields and sticking with global equity exposure.
Can central bank independence survive?
Can central bank independence survive? Macro Strategist John Butler discusses the challenges faced by central banks in an increasingly fraught political environment and how investors should adjust.
By
Sahm rules are meant to be broken
Fed easing is finally here and fundamentals remain favorable. But what about that election? Members of our Investment Strategy & Solutions Group offer their outlook, including their latest views on equities, bonds, and commodities.
Multiple authors
The real issue on rate cuts? Keep your eyes on the dot (plot)
Keep your eyes on the Fed's 2025 dot plot. The real story is where policy rates are headed, not just the next rate cut.
By
Bonds in Brief: Making Sense of the Macro — August issue
What's driving global bond markets and what are the investment implications? Read the August issue of "Bonds in brief" for Wellington Investment Director Marco Giordano's monthly assessment of risks and opportunities within bond markets.
Time to capitalise on the evolving role of bonds?
We outline why we think the new economic era is elevating the role of bonds as a source of attractive and stable income, downside protection and portfolio diversification.
Bonds in Brief: Making Sense of the Macro — July issue
What's driving global bond markets and what are the investment implications? Read July's issue of Bonds in Brief for Wellington Investment Director Marco Giordano's monthly assessment of risks and opportunities within bond markets.
Walking a mile in Fed Chair Powell’s shoes
A slow roll on rate cuts by the Fed could frustrate markets and lead to more volatility ahead of the September FOMC meeting. See our take on what to expect for the next few weeks.
By
Still waiting…Fed wants more data before cutting policy rates
Our expert dives into Fed policy following the July FMOC meeting.
Bonds in Brief: Making Sense of the Macro — June issue
What's driving global bond markets and what are the investment implications? Read June's issue of Bonds in Brief for Wellington Investment Director Marco Giordano's monthly assessment of risks and opportunities within bond markets.
URL References
Related Insights
© Copyright 2024 Wellington Management Europe GmbH. All rights reserved.
WELLINGTON MANAGEMENT FUNDS ® is a registered service mark of Wellington Group Holdings LLP.
Wellington Management Europe GmbH. Registered office: Bockenheimer Landstraße 43-47, 60325 Frankfurt am Main, Germany. T: +49-69-677761-500. VAT-number DE 326304943 (Umsatzsteuer-Identifikationsnummer) Commercial Register of the local court Frankfurt am Main (Handelsregister des Amtsgericht Frankfurt am Main), HRB 115460 .
Wellington Management Europe GmbH, is authorised and regulated by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht)
For professional investors and intermediaries only. This content is not suitable for a retail audience.
we’d love your feedback!
Help us improve our website. For every short survey taken, we give 2 to the Wellington Management UK Foundation to support educational charities helping economically disadvantaged children in EMEA.
The real issue on rate cuts? Keep your eyes on the dot (plot)
Continue readingBy
Brij Khurana