Daily Spotlight: Fed Makes Second Rate Cut

Summary

The Federal Reserve, as expected, has lowered the current fed funds rate by another 25 basis points. The current fed funds target rate is 4.50%-4.75%. This was the second reduction in the rate-cut cycle, which commenced in September after the central bank had hiked rates during 2022 and 2023. The economy remains strong and labor figures remain solid. However, the Fed has shifted its focus from fighting inflation to protecting employment. Since the Fed started raising rates in 2021, PCE inflation has fallen from readings above 7.0% to readings nearing the goal of 2.0%. The latest reading on PCE inflation was 2.1%, though core PCE (ex. food and energy) remains elevated at 2.7%. Meanwhile, the unemployment rate has increased from 3.4% to 4.1% and monthly payrolls gains have slowed from 300k to 100k, excluding the latest report (which included the two hurricanes and the Boeing strike). Indeed, the Fed has lifted its current year-end target for the unemployment rate to 4.4% from 4.0% last June. Based on the Fed’s decision, its commentary, and the forecasts of its gov