The Fed’s 0.5% Rate Cut Delivered New Market Highs

Traders work on the floor at the New York Stock Exchange as Federal Reserve Chairman Jerome Powell speaks after announcing a rate increase in New York on Nov. 2, 2022. Seth Wenig/AP Photo

Commentary

Last Wednesday, the Federal Open Market Committee (FOMC) statement announced a surprising 0.5% key interest rate cut and signaled another 0.5% in rate cuts for the rest of this year (two 0.25% cuts in each of the November and December FOMC meetings). For the first time since 2005, this was not an unanimous decision, since Fed Board member Michelle Bowman voted for only a 0.25% rate cut. The immediate reaction was that the U.S. dollar declined, gold surged, crude oil rose, stocks rose, and Treasury yields declined. Ten-year Treasury bond yields have declined nearly a full point this quarter, from 4.72% on July 1 to 3.73% last Friday. The 2-year note has declined even further, from 4.77% on July 1st to 3.55% last Friday, or 122 basis points, so the Fed had to cut rates by 50 basis points to catch up.