Federal Reserve Chairman Jerome Powell speaks during a news conference following the September meeting of the Federal Open Market Committee at the William McChesney Martin Jr. Federal Reserve Building in Washington, DC, September 18, 2024.
Anna Money Tree | Getty Images
This report comes from today's CNBC Daily Open, our international markets newsletter. CNBC Daily Open keeps investors updated on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
Extra large 50 point cut
Fed Cut interest rates by half a percentage point, bringing the federal funds rate to 4.75%–5%. FOMC members expect the unemployment rate to fall to 4.25%–4.5% by the end of this year, which would imply another half-percentage point drop by 2025.
Rate cuts failed to boost markets
US markets rose on the back of a 50-point interest rate cut by the Federal Reserve, but failed to sustain gains. Wednesday, Standard & Poor's Down 0.29% Dow Chemical down 0.25%, Nasdaq down 0.31%. However, Asia-Pacific markets were higher on Thursday. Hong Kong Hang Seng Index Home prices rise about 1.8% as city lowers interest rates
presidential predictions
US Vice President Kamala Harris is more likely to win the presidential election than former President Donald Trump, according to a CNBC survey. Among 27 respondents, made up of investment strategists, economists and fund managers, 48% thought Harris had a better chance of winning, 41% said Trump and 11% did not. Sure.
Take the middle road
Bridgewater Associates founder Ray Dalio told CNBC that the upcoming US presidential election will be “the most important election of his lifetime” and that “neither candidate is what the country needs.” In addition, Dalio said that the economy is “relatively balanced,” but the Fed must take a “balancing action” to keep interest rates neither too high nor too low.
(PRO) Top-performing stocks after rate cuts
A half-percentage point rate cut by the Federal Reserve could lower U.S. Treasury yields, prompting return-seeking investors to shift to riskier assets such as stocks. But some stocks are more sensitive to interest rates than others. CNBC Pro screened stocks to find the top 10 gainers following the rate cut.
bottom line
The futures market is right.
Just before the Fed meeting, the Fed projected a 64% chance of a 50 basis point rate cut, according to the Fed. CME FedWatch Tool. In comparison, according to a CNBC survey, experts generally believe that a 25 percentage point interest rate cut is more likely.
Such a prediction could be seen as a completely altruistic thing to do. That is, forecasts are based on objective considerations of economic conditions and are balanced against inflation risks.
These predictions can also express hope, which can embody a desire but not be supported by evidence.
When this hope materializes, markets may experience a brief panic.
As the Federal Reserve announced a sharp interest rate cut, the S&P 500 and the Dow Jones Industrial Average hit record highs before eventually closing in the red. The same goes for the Nasdaq.
It's hard to understand what's going on there because the market is so driven by emotion that sometimes defies explanation or evidence.
This may be what Fed Chairman Jerome Powell has in mind. He may realize that a deeper than usual rate cut could mean the Fed is worried about the economy.
As a result, Powell spent much of his post-meeting press conference trying to tone down the mood.
“I don't see any signs in the economy right now that would indicate an increased likelihood of a recession, sorry, downturn,” Powell said.
So why did the Fed decide not to continue cutting interest rates by 25 basis points?
In his opening remarks, Powell said the decision marked a “recalibration” of policy, appearing to anticipate concerns. In other words, the Fed's sharp rate cuts indicate that the Fed is taking the lead in setting monetary policy, rather than reacting slowly to economic conditions.
It will take some time for investors to digest Powell's assurances. After all, markets are largely irrational creatures that react instinctively when big news breaks.
–CNBC’s Jeff Cox, Yun Li, Hakyung Kim and Samantha Subin contributed to this article.