The Federal Reserve cut interest rates by half a percentage point, signaling concern about the economy but maintaining its position that a recession is not imminent. The move surprised some analysts who had anticipated a smaller reduction.
This report is from today's CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe, bringing the federal funds rate to 4.75%–5%. Federal Open Market Committee members see the rate falling to 4.25%–4.5% by the end of this year, meaningbefore 2025. Members also raised their estimation of the unemployment rate this year to 4.
Those predictions can also express hope, which can embody a desire without having evidence to back it up.After touching record highs as the Fed's jumbo-sized cut was announced, the S&P 500 and Dow Jones Industrial Average ended the day in the red. So did the Nasdaq Composite. It's difficult to understand what happened there, since markets are so driven by sentiment that sometimes defy explanation or evidence.
That might have been at the back of Fed Chair Jerome Powell's head. And he was likely aware that a bigger-than-usual cut might connote that the Fed's worried about the economy."I don't see anything in the economy right now that suggests that the likelihood of a recession, sorry, of a downturn, is elevated," Powell said.As if anticipating worries, Powell said in his opening statement that the decision marked a"recalibration" of policy.
Investors will take some time to digest Powell's assurances. Markets, after all, are largely irrational creatures.
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