The Fed Finally Pivots… Here’s What You Should Know

Yesterday was a big day, folks. The Federal Reserve concluded its Federal Open Market Committee (FOMC) meeting for September, announcing its long-awaited decision on key interest rates.

If you haven’t seen the news yet, I won’t keep you in suspense. The Fed cut rates by 0.5%, and it was the first rate cut we’ve had since March 2022.

Now, leading up to this meeting, the pressures have been mounting for a rate cut. The reality is that inflation is cooling (which we covered in last Thursday’s Market 360), and will soon be within the Fed’s 2% annual target.

Companies aren’t as worried about inflation as they once were, either. FactSet recently noted that less than 50% of S&P 500 companies cited inflation during their second-quarter earnings calls.

Source: FactSet

Combining this with recent weakness in the labor market and falling Treasury yields, it was clear a rate cut was baked into the cake for September.

In fact, while the market had assumed for months that a 0.25% rate cut was in order, there was a growing consensus that the Fed should cut rates by 0.5%. Before the announcement yesterday, CME’s FedWatch Tool showed a nearly 60% probability of a 0.5% rate cut, with the likelihood of a 0.25% rate cut at 41%.

But to be frank with you, what I was really interested in hearing yesterday came from the committee’s “dot plot” and Fed Chair Jerome Powell’s press conference.

The dot plot is a chart that is updated quarterly and shows where Fed officials think key interest rates will be for the rest of the year. And Powell’s comments will give a look at how the Fed feels moving forward.

So, in today’s Market 360, let’s take a closer look at the FOMC statement, the latest dot plot chart and Powell’s comments. I’ll also share what this means for the future, and how you can benefit.