As we noted in our May commentary, Jay Powell and friends seemed to be looking for any excuse to cut rates.

Key Takeaways
  • The Federal Reserve cut its target for overnight rates by 25bps to a range of 2.00 – 2.25%, the first cut since the financial crisis
  • Policymakers took incremental steps to improve money market liquidity with the end of the balance sheet runof
  • The statement accompanying today’s action implies a “neutral cut,” a slight negative for the 2-5yr part of the curve and for risk assets
  • Forward guidance was limited, and while Powell’s presser should have more information, markets continue to price more cuts in 2019

While they could not find one in the data, they seem to have found one in the balance of risks to the economic outlook. Still, meeting the market’s demand for further cuts is going to be a tougher sell if economic data remain reasonably stable.

The Federal Reserve Open Market Committee today reduced its target for overnight interest rates by 25bps to a range of 2.00% to 2.25%, executing the first rate cut since the early phases of the Global Financial Crisis. Today’s action comes just 7.5 months after the Fed executed its last hike of the cycle, a timeframe only a bit shorter than the 11.5 month historical median.

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About the author

Guy LeBas

Director, Custom Fixed Income Solutions

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