RIA citizen and pro comments range from 'shocked! shocked!' to 'ho-hum' on Fed's 50-point rate cut but agree on key points

The Federal Open Market Committee made its first interest rate cut in four years in an 11-to-1 vote, blatantly rooting for the labor market but with a nod to inflation, it concedes, is still “somewhat elevated.”

“This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%,” Fed Chair Jerome Powell said in a press conference following the announcement.

The only dissent came from Governor Michelle Bowman – first dissent from a governor since 2005 – but even she was in favor of a cut, albeit, smaller.

With all the Fed ambivalence in words and action, perhaps it should be unsurprising that the stock market followed suit by going up, down and sideways. By the end of the trading day, it had not really moved much at all.

Also varied - and more colorful – is our collection of RIA world commenters published below.

Alex McGrath, Chief Investment Officer for NorthEnd Private Wealth  (Greenville, SC)

50bps!!!!!!  On what basis was this decision made? The market initially loved the move but has since reversed.  

There isn’t much to take away from the announcement other than those cowards bowed to political pressure, because perhaps you’ve noticed that inflation is still above target, markets are at all-time highs, real estate is still at all-time highs, employment/GDP is still good, but we need to cut 50bps because……….well I guess we’ll let Powell fill in the blank at his presser.

I would be watching for a major reversal to the downside post presser because they could not have come to this decision without seeing some very disturbing economic data coming down the pipe.

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Gina Bolvin, President of Bolvin Wealth Management Group (Boston, MA)

Bring back the briefcase indicator!

Powell cut by 50 points because the SEP projects inflation to fall to 2.1%, yet unemployment will rise to 4.4% and may jeopardize a soft landing. It’s a balancing act between the Fed’s two mandates. 

A 50 basis point cut is justified and still keeps rates restrictive, as well as the Fed keeps enough powder dry in case of an emergency.

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Quincy Krosby, Chief Global Strategist for LPL Financial (Charlotte, NC)

 Equity markets applauded the Fed's decision to initiate its easing cycle, with 50 basis points. As the stateme

nt noted, the Fed's dual mandates are in balance.

Still, the larger move as expected in the futures market was more focused on risks associated with risk management of labor conditions, as the statement noted that inflation has been moving towards the Fed's target.

Given how much discussion has surrounded this move, the announcement certainly wasn't a surprise. However, the lack of guidance by Fed officials indicates that although there was only one dissent, there must have been a forceful discussion and work towards building a consensus.

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Charlie Ripley, Senior Investment Strategist for Allianz Investment Management (Minneapolis, MN)

On the Fed Meeting Recap: Prior to the FOMC meeting, market participants were clearly bifurcated on whether the Fed should cut 25 basis points or 50 basis points, which ultimately meant there was going to be disappointment from some investors regardless of the outcome. Due to the wider range of differing views, this meeting was more difficult for the Fed to manage as forward guidance through the dot plot was viewed just as important as the actual magnitude of the initial rate cut. By cutting 50 basis points and signaling a more dovish stance through 2025, the committee is signaling the policy stance prior to the meeting was a bit long in the tooth relative to the current economic conditions.

Our Take:

While we can all debate the warranted speed of rate cuts out of the gate, the reality is the direction of travel for policy rates is lower and getting to a more neutral stance on rates should arguably be the finish line of this race. The track record from this Fed has shown they haven’t historically been the fastest out of the gate, but they have exhibited the ability to dial up the pace when deemed necessary. Against a backdrop where the strength of the economy has been difficult to gauge, the move to cut 50 basis points out of the gate from the Fed seems to be appropriate as the pace of rate cuts on the path to neutral can be adjusted accordingly. With a better assessment on how the Fed is going to run the rate-cutting race, investors can focus on the bigger obstacle on the horizon, the upcoming US election.   

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Jamie Cox, Managing Partner for Harris Financial Group (Richmond, VA)

The Fed had the guts to do what needed to be done. I’m surprised, but glad. The Fed is determined to stick to its soft landing. 

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John Lynch, Chief Investment Officer for Comerica Wealth Management (Charlotte, NC)

The Fed was more aggressive than I expected, since 50-basis-point cuts are historically associated with crises.

I don’t consider 2% GDP, 4.2% unemployment rate and 15% profit growth forecasts for 2025 as a crisis.  As a result, I’m still skeptical of the extent of expected rate cuts next year.

The spread between 2s and the fed funds rate is the widest in 40-plus years, which essentially forced the Fed’s hand.

Clearly, they’re more concerned about employment, after spending the last few years on inflation.  However, gold hovers near record highs, so the market is still worried over pricing, particularly with surging federal deficits.

Lower market interest rates should help housing and employment. 

We look for traditional beneficiaries including small caps, value, cyclical sectors, and the equally-weighted S&P 500 Index to experience tailwinds.

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Jeffrey Young, principal of DeepMacro, Westchester County, NY

Beware the Dreaded “Hawkish Ease.” The Fed "went big" with a 50-basis-point cut to open its easing cycle. But after the positive knee-jerk reaction -- rates down, equities up, the dollar softer -- these markets reversed and did a full round-trip by late in the afternoon. 

When the Fed has changed policy direction in recent cycles, its rhetoric has tended to go the opposite way of the policy change. So when the Fed has hiked, it has watered it down with dovish commentary (the "Dovish Hike"). And when it has cut, it has watered it down with hawkish commentary (the "Hawkish Ease"). Why??? It's probably to signal that the Fed is not moving too abruptly, and that it can achieve its goals without too much policy action (i.e., it is not "behind the curve"). It might be true, but is confusing to the markets. Basically, all it does is push the speculation about the Fed's true intentions to the next meeting. At which point we will all be wondering again -- 25 basis points? 50 basis points? No cut at all?

For markets, that means two things. First, it requires careful attention to each data point. The data will determine if the Fed tilts dovish or hawkish. If you ask me, the data have been firm: retail sales just exceeded forecasts and were revised up. Inflation was higher than expected, and core services inflation (5% year-year) is double the rate that is consistent with the Fed's 2% target. The labor market has undeniably softened -- but consumers haven't stopped spending, so it's far from recessionary. Firm data are consistent with the limited easing for the rest of the year implied by today's "dot plot" -- which was less than the market had expected. Second, it means that the Fed might not be as important to markets as we seem to think. Stocks are up a lot this year even though the Fed has kept the funds rate at 5.5% until now. The economy has been finding its own way toward a decent place, and it can keep doing it without excessive "two-handed" guidance from the Fed.