Fed Cuts rates at 50 bps today

[adaseb]

I am sure you heard how the fed cut rates at 50 bps today, this is a surprise because Powell was usually dovish however this 50 bps cut seems aggressive since the US economy is fairly strong and there was a strong 25 bps consensus just until last week.
 
Now all of a sudden we get a 50 bps rate cut. Remember Sept 18 2008, we got a 50 bps rate cut also, and the rest is history.

What is your theory on why this massive cut was necessary? I think there is something in the data that suggests the economy is not as strong as most people think.

[STT]

Main take away is higher volatility is apparent, when the FED's hand is forced they have to take bigger actions.  Their preference is clearly baby steps because the number one rule they keep is to avoid disorderly markets.  The larger rate cut move though not as large as some I remember its really not their preference so my take is be aware they do not do this lightly.

So in every market I have to raise my aim and expect greater sharper moves are possible and we do hopefully avoid recession but its not for sure.  The last couple years after the covid rebound, recession was expected even if light it was on the map and yet it didnt occur in most places.  That was some good luck, Im not sure we should always expect that clear path.

Bottom line, its always my expectation the net result of both government and the Federal reserve is inflation.  Constant devaluation of the currency, lower worth dollar.  You could say this helps Bitcoin but its not a positive for anyone in the end.  The FED avoids disorderly markets but they have no aversion to reducing the value of the Dollar year after year, mostly because the national debt would be unserviceable otherwise imo.

[Don Pedro Dinero]

What is your theory on why this massive cut was necessary? I think there is something in the data that suggests the economy is not as strong as most people think.

Of course, the economy is not as good as it is made out to be. If they had delayed the rate cut until now, it was because of the inflation problem, and we will see how things develop from now on.

Now all of a sudden we get a 50 bps rate cut. Remember Sept 18 2008, we got a 50 bps rate cut also, and the rest is history.

Put this way, and this is a way of expressing it that I have seen quite a lot lately, it would seem that the FED is the one that causes recessions, when if we have a little bit of brains we will see that the FED was trying to stimulate the economy when the subprime crisis was exploding. The problems started in 2007, maybe a bit earlier, and the big subprime explosion was in 2008.

You must be one of those who thinks that firemen cause fires, because whenever you see a fire you see firemen there.

[EarnOnVictor]

I am sure you heard how the fed cut rates at 50 bps today, this is a surprise because Powell was usually dovish however this 50 bps cut seems aggressive since the US economy is fairly strong and there was a strong 25 bps consensus just until last week.

I share your view but I disagree that the FED is being aggressive, the cutting of the interest rate is long overdue and this is a little compared to how much they raised it, so it's the right step towards the right direction. And 2 years ago when FED started the aggressive hiking, people were complaining but now that they are doing the reverse, the same is happening. I carefully studied the past CPI, PPI and PCE  for months and I discovered that it's never aggressive even if the August inflation report is not encouraging, the average in months is worth it, expect more cuts soon.

Now all of a sudden we get a 50 bps rate cut. Remember Sept 18 2008, we got a 50 bps rate cut also, and the rest is history.

I believe they must have considered all indicators before going for the 50 bps cut, and we can't entirely use the past history to just the reality of today.

What is your theory on why this massive cut was necessary? I think there is something in the data that suggests the economy is not as strong as most people think.

My theory is that the average inflation rate in the US is subsiding if you widen your scope in periods. According to Reuter's earlier graph below obtained from the Bureau of Labor Statistics, you can see the contrasts from 2022 and 2024, there is no way this will not affect the average rate. If they can cut it because it was high then, why can't they cut it when it is low now?

[JeffBrad12]

economy has been getting tougher after 2020, everywhere it's always deficit, it happens across the globe and not limited to certain country, I expect other country also to follow the direction, it's just matter of time.

if you see by yourselves and find out the real inflation that we're having across the globe, it's kinda alarming in my opinion that I can be sure if i just sit idly not investing at all in just few years i'd only have half of what my current wealth worth.

at difficult time like this, just gonna invest aggressively.

[Lida93]

What is your theory on why this massive cut was necessary? I think there is something in the data that suggests the economy is not as strong as most people think.

The government are the ones that made us to think that the economy is relatively strong when it's actually not ever since the pandemic and we all saw the downsizing that affected both public and private organizations globally, some got folded while others condescended to a merger just to stay in business.

If the consensus was projecting around 25pbs and we're seeing 50pbs rate cut then it explains much about how bad the economy has gone hence the decision to the aggressive rate cut which is sternly to prevent and recover the economy from further recession, nevertheless while this action has been taken it also tasked on the government to make sure they strive to strike a balance between the risk of further inflation base on this cut and economic growth in the country.

[MusaMohamed]

Now all of a sudden we get a 50 bps rate cut. Remember Sept 18 2008, we got a 50 bps rate cut also, and the rest is history.

What is your theory on why this massive cut was necessary? I think there is something in the data that suggests the economy is not as strong as most people think.

It's not a sudden cut if we pay attention on voice tone of FED in their latest meetings. They have been trying to use softer words in latest meetings that are their proactive early signals of their next actions. Look back farther, we saw that they did oppositely months before they started to increase the rate after the Covid-19.

Connecting dots, we can recognize that FED don't want to do sudden things and they intend to use their regular meetings and words, meeting tone to proactively test reactions of the market if they do this or do that. When they feel enough from testing results through some regular meetings, they will officially take proper actions. Their actions are not arbitrary but meeting-based and they don't suddenly do anything.

About the rate cut announced hours ago, they had to do this on order from the White House and we can predict it when the President Election is only less than 2 months left.

[ChiBitCTy]

The 50 basis point rate reduction in September of 2008 had nothing to do with the cause of the Great Recession.  The great recession actually started in Dec of 2007, so well ahead of the Sept 08 50 bip reduction you mention.  

I think this rate cut was a measure taken on by quite a few factors.  Read a good article detailing it..

"Whether the Fed can calibrate its rate cuts so as to achieve what economists call a soft landing - the policy coup of guiding an economy through a period of tight monetary policy to stifle inflation without jarring the labor market - will be one of the most important ways its actions will affect regular Americans". - https://www.reuters.com/markets/us/what-does-fed-rate-cut-mean-american-households-2024-09-18/

What is your theory on why this massive cut was necessary? I think there is something in the data that suggests the economy is not as strong as most people think.

The government are the ones that made us to think that the economy is relatively strong when it's actually not ever since the pandemic and we all saw the downsizing that affected both public and private organizations globally, some got folded while others condescended to a merger just to stay in business.

If the consensus was projecting around 25pbs and we're seeing 50pbs rate cut then it explains much about how bad the economy has gone hence the decision to the aggressive rate cut which is sternly to prevent and recover the economy from further recession, nevertheless while this action has been taken it also tasked on the government to make sure they strive to strike a balance between the risk of further inflation base on this cut and economic growth in the country.

There's actually quite a bit of date that shows that the economy has been strong or relatively strong over the last 4 years.  Low unemployment is a big one.  Currently unemployment sits at 4.2%, which is down from 14.8% in April of 2020. 

[Die_empty]

What is your theory on why this massive cut was necessary? I think there is something in the data that suggests the economy is not as strong as most people think.

The Federal Reserve has managed the US monetary policy well to a large extent. They have whittled down all pressure to cut interest rates even when it was evident that businesses needed relief. With inflation reducing and employment slowing down, they took the right decision to reduce interest rates. But I never expected a half-point reduction because most predictions were 25 basis points.

A massive cut shows that the economy is okay and can withstand the effect the decision. Inflation didn't reduce as expected but the US economy is still strong. If the Feds wait for inflation to reduce to its benchmark of 2%, the economy might suffer more adverse effects. With this reduction, businesses can seek loans to expand, create more jobs and contribute tax to the economy. Individuals will also have more money to invest in both safe-haven and unsafe-haven assets, which might lead to better economic conditions.

[pooya87]

What is your theory on why this massive cut was necessary?

Is it really massive?
In any case,... This is 99% political and I'd say there is only 1% chance that has anything to do with economy.

A while ago I said the energy prices are coming down, but that decrease was small and it is also reversing. For example for the past 9 days oil price has been rising ($69 to $74) and the tensions are rising in the world as well which means the US government will spend (or rather waste) more money which means they will have to print more money to cover the deficit. All of which means more inflation which then requires higher rates.

This is why I say chances of it having anything to do with economy is slim to none. The US economy is getting worse.

However, there is an election coming in the US and the party in office wants to give positive signals to the voters to encourage them to vote for their party again. Hence the rate cuts

[NewRanger]

Now all of a sudden we get a 50 bps rate cut. Remember Sept 18 2008, we got a 50 bps rate cut also, and the rest is history.

What is your theory on why this massive cut was necessary? I think there is something in the data that suggests the economy is not as strong as most people think.

Finally they couldn't stand it anymore and were forced to do it..Yes. In my opinion, of course many people hoped and had high hopes after the decision was announced, especially for developing countries, where if we read from several news sources, the response to the policy is expected to be quite helpful and have a real impact on their economic growth, which was initially only expected to be cut by 25 bps, but the cut was decided to be 50 bps, and just waiting for good news for BTC.

[Marvell1]

Not only did the Fed cut 50 bps, which surprised everyone, but Powell's tone was also extremely dovish, which made people both happy and worried.

Currently, there are two schools of thought in the market and this has made the market trend unclear: Some believe that inflation is under control and the economy is entering a recovery phase as the Fed has declared. Meanwhile, some suspect that the Fed is worried about a recession and that is why they are rushing to cut interest rates.

One data shows that in 2007, they also rushed to cut by 50 basis points and as we all know, there was a big recession in 2008. So a 50 basis point cut is not necessarily as good a sign as people think. I agree with you, we need more time to assess the health of the economy, we can't rush to believe what they say.



Pic source: x.com

[MusaMohamed]

Is it really massive?
In any case,... This is 99% political and I'd say there is only 1% chance that has anything to do with economy.

It is from political pressure and FED can not delay the rate cut more when President Election day is less than next 2 months. This big rate cut also shows that the USA economy is actually worse than common predictions and it's what Trump said after the FED announcement.

Like Trump or not, what he said in this situation is right, but there is another fact, with terrible money printing since Covid-19, FED created very big problems that won't be solved easily after one big rate cut.

Not only Trump saw it, weeks ago Warren Buffet massively cashed out too. Recession, soft recession, financial crisis will be one of words used by governments but reality is people struggled and will continue struggling in coming years as consequences of Covid-19 and bad policies from FED.

The thread has some information on it.

The Fed is making its WORST policy mistake since 1929

This is not going to end well

The Fed has maintained steady interest rates for the past 12 months

This last happened right before the 2008 Financial Crisis

Back then, Fed Chair Ben Bernanke expressed regret for not cutting rates sooner

Prior to the Financial Crisis, the Fed kept short-term rates above the economy's neutral rate

Indicating tight monetary policy

This persisted until the recession began in Dec 2007

Marking 1.5 years of economic pressure

But, this wasn’t the first time the Fed made such a mistake

In the late 1920s, they also kept rates too high for too long

Contributing to the onset of the Great Depression

In hindsight, the Fed acknowledged that they should have cut rates sooner

Fast forward to today:

The Fed funds rate has been above the neutral rate for 2 years now

Monetary policy remains tight, and the risks of another policy mistake is elevated

Initially, this was necessary to curb the 2022/2023 inflation

But now there’s strong evidence that inflation is stabilizing

So, the Fed’s continued restrictive stance is likely a mistake

At the recent Jackson Hole meeting, Powell indicated rate cuts would start this month

But it won’t reach non-restrictive levels until April 2025

With economic indicators already deteriorating, this delay could prove costly

The labor market is already showing warning signs

Businesses have begun to lay people off

And hiring has slowed to its lowest level since 2020

Both employment and inflation data suggest the Fed should begin cutting rates quickly

But, despite the economic weakening, the stock market has been rising

Should we be preparing for a downturn? Not so fast

Remember, the stock market isn’t always a rational predictor of the future

For instance, in the 1920s - stocks soared heading straight into the Great Depression

But, once the recession hit, then market came back to reality

[Fortify]

I am sure you heard how the fed cut rates at 50 bps today, this is a surprise because Powell was usually dovish however this 50 bps cut seems aggressive since the US economy is fairly strong and there was a strong 25 bps consensus just until last week.
 
Now all of a sudden we get a 50 bps rate cut. Remember Sept 18 2008, we got a 50 bps rate cut also, and the rest is history.

What is your theory on why this massive cut was necessary? I think there is something in the data that suggests the economy is not as strong as most people think.

This is great news for people in America and Europe, that central bank rates are going back down again. Inflation introduced a lot of volatility into these countries (along with the whole world) and was in danger of entering a dangerous loop that gets worse. Anyone who has a mortgage, which is a lot of people, are going to be very grateful for this as the amount they pay each month goes down. Many peoples finances were getting squeezed, the economy was starting to stutter, so this should increase spending levels for the average consumer again. It is a surprise to see a half point drop instead of a quarter point, but there have been a couple sharp warning signals lately.

[stompix]

It's always amusing to see what social media does to some people

- The FED is increasing the rate, the US economy is doomed
- The FED is decreasing the rate, the US economy is doomed
- The FED does nothing, and the US ecomy is still doomed
- Unemplyment grows, the US economy is doomed
- Unemployment decreases,  the US economy is doomed

For god's sake, the FED cu the rate by 50 points back to 5%, meahwile the counties with the highest demographic on the forum:
- Russia increased the rates by 1% to 19%!
- Nigeria raised them by 150 basis points  to 26.25%
- Iran raised it by 60 points to 23.00, Pakistan is at 17.50
- India is at 6.50%, Philipines at 6.25 but no, it's the US that's in trouble!

[Sayeds56]

I am sure you heard how the fed cut rates at 50 bps today, this is a surprise because Powell was usually dovish however this 50 bps cut seems aggressive since the US economy is fairly strong and there was a strong 25 bps consensus just until last week.
 
Now all of a sudden we get a 50 bps rate cut. Remember Sept 18 2008, we got a 50 bps rate cut also, and the rest is history.

What is your theory on why this massive cut was necessary? I think there is something in the data that suggests the economy is not as strong as most people think.

Yes! I have been eagerly awaiting thsi good news for weeks, however 0.50% cut in lending interest rates came as a surprise to me because my expectation was 0.25%. This announcement is an indication that inflation is now under control and increase in money supply will certainly have positive impact on all financial markets including Bitcoin. Hopefully, we will see Bitcoin making new all time high (ATH) in coming weeks. Moreover, the overall economic activity is expected to pick up soon.

[adaseb]

So yesterday they cut rates, and the market was a sell the news type of event. It hit a new ATH and then it closed at the lows of the day. Today the market gaps up and dow jones and sp500 all enter new ATH. Crypto is rallying and so is Gold and Silver.

Honestly I would becareful. This might be a trap. If the market stays in this area, then its a safe long but I have a feeling that the market makers know that everybody is taking money out of their bonds and putting into equities and they are expecting a boom. And shortly after there might be a huge dump. Similar to what happened in 2008. I dont trust this move at all.

[Frankolala]

However, there is an election coming in the US and the party in office wants to give positive signals to the voters to encourage them to vote for their party again. Hence the rate cuts

Nice catch...I also thought as much. Election is around the corner and US wants to give false hop to ther citizens that they will be a better tomorrow by cutting down the rates by 50bp so that citizens can be encouraged to vote, and after election they do whatever they like.

It is funny to see that even the US cannot do much to stop the rate of inflation in their country but claim that they are economy experts. The only thing that they know how to do is to print more money. It is similar to adding petrol to a burning fire.

[Porfirii]

However, there is an election coming in the US and the party in office wants to give positive signals to the voters to encourage them to vote for their party again. Hence the rate cuts

Nice catch...I also thought as much. Election is around the corner and US wants to give false hop to ther citizens that they will be a better tomorrow by cutting down the rates by 50bp so that citizens can be encouraged to vote, and after election they do whatever they like.

It is funny to see that even the US cannot do much to stop the rate of inflation in their country but claim that they are economy experts. The only thing that they know how to do is to print more money. It is similar to adding petrol to a burning fire.

But if that's the reason they would follow the same strategy every four years. It seems that something's different this time.

I follow the price of the USD against EUR and it's decline is unstoppable, even now that the Euro is not at a good moment either (in fact rates are also being cut here).

The good thing is that cryptos went up today after the news. I have never been a blind believer of cryptos as a reserve of value against the financial crisis and even less these days when it seems that there is a clear coupling between Bitcoin and markets like WS, but these events make me reconsider my thoughts.

[pooya87]

But now there’s strong evidence that inflation is stabilizing

The labor market is already showing warning signs
Businesses have begun to lay people off

Both employment and inflation data suggest the Fed should begin cutting rates quickly

I gotta say the main problem with the world economy is these 3 statements.
1. Inflation is not stabilizing. It may not be as bad as it was on the peak but it is still high.

2. When businesses are laying a lot of people off but the unemployment rate doesn't rise as big as they are firing people (3% last year, 4% this year) it shows that the inflation is high enough to force businesses to fire people and it shows fired people are desperately taking far less paying jobs to pay the bills and maybe take second jobs (increase employment rate that way) and yet not be able to cover the cost of living (proving inflation is high). Which also indicates there is a recession going on since people are spending less money.

3. The solution to this situation (inflation+recession at the same time) is not to play with interest rates. The solution is for the government to cut costs so that they don't have to print so much money and cause inflation in first place.