Fed's Bold 50-Point Rate Cut Sparks Market Speculation on Future Moves
Discover how the Federal Reserve's unexpected 50-basis point rate cut has shifted market expectations for aggressive interest rate reductions throughout the year and into 2025.
Colin is an Associate Editor specializing in technology and financial news, bringing over three years of expertise in editing, fact-checking, and analyzing current financial and political developments. He holds an M.A. in Journalism from The New School and a B.A. in History and Political Science from McGill University.
Key Insights
- Following the Fed's substantial 50-basis point rate cut, traders are increasingly betting on continued aggressive interest rate reductions this year.
- Wall Street anticipates an additional 75 basis points in cuts by year-end, signaling at least one more 50-point cut in November or December.
- Market projections for 2025 rate cuts surpass the Federal Reserve policymakers' latest quarterly economic forecasts.
On Wednesday, traders significantly raised their expectations for ongoing Federal Reserve interest rate cuts after the central bank initiated its easing cycle with a notable 50-basis point reduction.
The Fed lowered the federal funds rate target range from 5.25%-5.5% to 4.75%-5%, aligning with investor predictions of a strong initial move to support a cooling labor market and guide inflation closer to the 2% target. Market confidence in a 50-point cut surged from 14% a week prior to over 60% earlier this week.
Wall Street interprets this policy shift as a prelude to further aggressive cuts. Traders now assign over a 50% probability that the Fed will reduce rates by an additional 75 basis points by the end of the year, implying another 50-point cut at either the November or December meeting.
However, Federal Open Market Committee (FOMC) members remain more cautious. Among 19 members submitting forecasts, nine expect the policy rate to finish the year between 4.25% and 4.5%. Only one member aligns with the market’s aggressive cut expectations, while two anticipate no rate cuts this year.
Compared to June’s projections, policymakers foresee slightly lower interest rates in the near term, with the consensus rate forecast for the end of 2025 dropping from 4.1% to 3.4%.
Interestingly, the long-run neutral rate—the level at which monetary policy is neither restrictive nor accommodative—is now projected at 2.9%, slightly above the previous 2.8%. Meanwhile, markets estimate nearly a 60% chance that the fed funds rate will fall below 3% within the next year.
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