Fed cuts start with a bang – what it means going forward

Highlights

• After significant uncertainty around the magnitude of the rate cut, the Federal Reserve (Fed) lowered the federal funds rate target range by 50 basis points (0.50%) to 4.75%-5.00%, the first cut since 2020 after holding rates steady since mid-2023.
• Today’s rate cut will have little immediate impact on the U.S. economy. However, the Fed’s updated projections for quicker normalization of monetary policy suggests an earlier reprieve for consumers and businesses and improved near-term sentiment.
• Equities tend to respond positively to falling policy rates over the next year if a recession is avoided (our base case). Regardless of economic outcomes, core fixed income has generally performed well following the first Fed rate cut.