Fed cuts 50bps in surprise outsized easing move

The FOMC cut the federal funds target range 50 bps to 4.75-5.00% on September 18 2024, the first rate cut since March 2020 and larger than the 25 bp cut priced by futures at open. The decision included a dissent from Governor Bowman, the first FOMC dissent by a governor since 2005. The dot plot implied another 50 bps of cuts by year-end 2024 and 100 bps through 2025.

Markets reacted with mild disappointment despite the larger cut. The S&P 500 closed down 0.29% after intraday volatility as investors debated whether the outsized cut reflected confidence in disinflation or concern about labor market weakness. The 10Y yield rose 5 bps counterintuitively as markets interpreted the cut as front-loading accommodation rather than extending total easing.

The 50 bp cut reflected the unusual post-COVID cycle where labor market weakening accelerated faster than inflation normalization. The July 2024 jobs report had triggered the Sahm Rule, and the August report had shown unemployment rising to 4.3% from 3.4% at the 2023 trough. Powell's press conference emphasized that the Fed was "recalibrating" policy rather than responding to recession, a distinction critical for sustaining equity multiples. The session marked the beginning of the easing cycle that would extend through 2025 and 2026.