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The Fed's decision to cut interest rates by 25 basis points, as expected, has sparked a wave of analyst reactions as markets weigh in on potential future changes in monetary policy.
Analysts noted nuances in the Fed's updated statement, particularly regarding inflation and the broader economic outlook.
Dan Siluk, an analyst at Janus Henderson Investors, noted that the Fed’s statement had removed language that expressed “greater confidence” that inflation would move sustainably toward the 2% target. The change suggests the Fed is taking a cautious approach and may be prepared to respond flexibly to incoming economic data, Siluk said. The updated wording may reflect moderate optimism, as well as openness to adjusting policies if inflation becomes more persistent.
Ellen Hazen, chief market strategist at FLPUTNAM Investment Management, noted that Fed Chair Jerome Powell could face questions about balancing fiscal policy effects with data. Hazen argued that ignoring fiscal policy, as was the case in 2021-2022, may have contributed to higher inflation, and Powell may now need to prioritize policy responsiveness to avoid falling behind the economic changes caused by fiscal measures.
Great Hill Capital President Thomas Hayes said the Fed’s recent poor election results, despite sticking to market expectations, reinforced its commitment to being a non-political institution. Hayes noted that the move not only reaffirmed the Fed’s independence, but also reflected its awareness of the dual risks in the labor market as it seeks to balance rate cuts with economic stability.
Ben Vaske, senior investment strategist at Orion Portfolio Solutions, observed that the Fed’s 25 basis point cut signaled a less aggressive stance compared to its September rate hike. He noted that long-term interest rates rose earlier in the year but have started to fall following today’s rate decision. Vaske suggested that with the U.S. economy remaining strong, the Fed’s future path could be complicated by more cautious adjustments rather than rapid cuts.
Panson Macro analyst Samuel Thomas said the Fed’s statement largely mirrored that of September, and that he viewed it as a strategic “delay” as officials await clarity on fiscal policy changes. Thomas expects another 25 basis point rate cut in December and believes the Fed could signal a potential 100 basis point cut in 2025. Thomas suggested that the Fed’s upcoming quarterly economic forecasts will be crucial to its next policy moves.
*This is not investment advice.