Report from the Bank of Korea New York Office
Fed FOMC Results in 50bp Policy Rate Cut
“Big Cut for Risk Management Purposes… Could End as a One-Time Event”, “[Edaily Ha Sang-ryul reporter] The Federal Reserve System (Fed) in the United States cut its policy rate by 50 basis points (1 basis point = 0.01%) following the Federal Open Market Committee (FOMC) meeting results. Overseas investment banks (IB) assessed this as a hawkish (preference for tightening) ‘big cut’ (50bp rate cut) and predicted that there would be no additional big cuts for the rest of the year.”,
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, ‘The Bank of Korea New York Office stated this through a report titled ‘Market Participants’ Evaluation and Financial Market Response to September FOMC Meeting Results’ on the 19th.’,
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, ‘The Fed cut the policy rate by 50 basis points to 4.75-5.00% following the FOMC results last night. However, the decision was not unanimous. ‘Hawkish’ Fed Governor Michelle Bowman voted for a 25bp cut, with only 11 out of the 12 voting members supporting the big cut.’,
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, ‘Through the dot plot, the Fed indicated a year-end final interest rate level of 4.4% (median). This is lower than 5.1% three months ago. Out of the 19 members, the highest number, 9, projected the year-end policy rate to be between 4.25-4.5%. 7 members projected 4.5-4.7%, 1 member projected 4.0-4.25%, and 2 members projected 4.75-5.0%.’,
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, ‘The Fed noted progress in addressing disinflation in its policy statement. The Fed stated, “Inflation has made progress towards the 2% target but still remains somewhat elevated,” and “We have greater confidence that inflation is moving sustainably towards 2%.” The term ‘moderated’ for employment growth was changed to ‘slowed.’,
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, ‘Fed Chair Jerome Powell stated during the press conference, “Inflation is still above our long-term target of 2%, but over the past two years, it has significantly moderated, and we have greater confidence that it is moving sustainably towards our target,” and “The labor market remains robust, with no sign of mass layoffs, but there are ongoing indications of moderation due to increased supply, such as rising unemployment rates.” He also added, “There are no signs that the U.S. economy is weakening significantly or facing a recession.”‘,
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, ‘The office interpreted the decision as a hawkish big cut due to the market’s non-unanimous response to the rate decision and Powell’s emphasis on the strength of the U.S. economy and labor market, stating that they will adjust policies based on data received at each future meeting.’,
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, ‘Bank of America (BOA) commented, “The Fed chose the hawkish 50bp rate cut over the dovish (preference for easing) 25bp cut,” and “Considering the expanded concerns regarding the labor market, the Fed implemented the big cut, but the dot plot, where 9 out of 19 members forecasted rate cuts of 75bp or less by year-end, contains dovish elements.”‘,
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, ‘Goldman Sachs (GS) stated, “Despite the big cut, the forecasts of the members on the dot plot still show that a 25bp cut remains the baseline,” and “The change from the previous forecast of a 100bp cut by year-end to predicting possible baby steps over the remaining two meetings following the 50bp cut indicates that Chair Powell emphasized not viewing the 50bp cut as a new norm.” They further added, “This highlights Chair Powell’s effort to alleviate market concerns that the Fed knows something we don’t, implying that the big cut may be a one-time event.”‘,
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, ‘Deutsche Bank (DB) mentioned, “Chair Powell did his best to prevent market fears that the Fed knows something we don’t,” and “This means that the big cut could be a one-time event.” The Wall Street Journal also judged, “Today’s big cut was not an indication of the Fed’s policy direction but rather a risk management measure.”‘,
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