Fed finally cuts rates

After weeks of waiting, the Federal Reserve made its first interest rate cut since March 2020, lowering rates by 0.50% at its September meeting. This brings the federal funds rate to 4.75%-5.0%, with a plan to reduce rates to around 3.0% by 2026.

Here are two key points:

1. **Powell's Message**: Fed Chair Powell explained that the rate cut isn't due to a weakening economy or job market. In fact, both are still strong. The Fed cut rates because they believe inflation is cooling, and economic risks are balanced. While the economy isn’t in recession, growth is slowing. The rate cuts are expected to support spending, though their effects will take time. The good news is that markets, like bond yields, are already reflecting lower rates, which could help lower mortgage and borrowing costs.

2. **Market Reaction**: The stock market has risen about 18% this year, partly due to expectations of Fed rate cuts. Recently, sectors sensitive to interest rates and cyclical industries have caught up to tech. While September and October can be volatile due to elections and other factors, history suggests markets can remain stable if the Fed cuts rates without a recession. However, much will depend on upcoming economic data.