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September 25, 2024
The Fed cut interest rates by 0.50% at its Federal Open Market Committee meeting last week. The market expected a cut but was unsure by how much. The debate between a 0.25% and a 0.50% cut dominated headlines over the past week, but it was mostly noise and likely won’t have a significant long-term impact. Now that the first cut is complete, the focus shifts to how much and how quickly the Fed will continue to cut rates
Chairman Powell offered little guidance, describing the outsized rate cut as a recalibration. The Fed’s Summary of Economic Projections provides more insight into its current thinking, particularly the median estimate of the longer-run Fed funds rate. This estimate serves as a proxy for the neutral rate, the theoretical interest rate that neither stimulates nor restricts the economy. Officials previously estimated the neutral rate at 2.5%, but this year, the median estimate has risen from 2.5% in January to 2.9% in September. The Fed is signaling to investors that it believes the neutral rate is higher than it was before the pandemic. This has significant implications, as Chairman Powell has repeatedly expressed a desire to return to the neutral rate.
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Important Disclosures: Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.
S&P 500 Index: The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock’s weight in the Index proportionate to its market value.
This article was written by Dennis P. Barba, Jr. CEO, Managing Partner, Michael P. Finkelstein, CFA, Partner, and Robert Frenkel, CFP® of Oxford Harriman & Company and provided to you by Mark S. Bailey, Managing Partner, Senior Portfolio Manager.
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