Fed’s FOMC lowers rates again, dropping them another 25 BPs

It’s the first time in three years that the federal funds rate has been below 4%.

For the second month in a row, the Federal Reserve’s Federal Open Market Committee (FOMC) lowered interest rates.

The FOMC voted to reduce the federal funds rate, which influences all other interest rates in the U.S., by 25 basis points to the 3.75% to 4.00% range.

It marks the first time since November 2022 that the rate has been below 4%.

The vote was not unanimous as FOMC member Stephen Miran voted no, preferring a 50 basis-point cut. Jeffrey Schmid also voted no, favoring no changes to the federal funds rate.

Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months. In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3.75 to 4 percent,” the FOMC said in a statement.

Labor market concerns

While noting that the economy has been expanding at a moderate pace, FOMC members said job gains have slowed, and the unemployment rate has moved higher. Inflation has also risen since earlier in the year and is “somewhat elevated.”

The committee also decided to conclude the reduction of its aggregate securities holdings on December 1.

Moving forward, the committee said it will continue to assess incoming data, the evolving economic outlook, and the balance of risks.

“The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments,” the FOMC said.

No surprise at all

The move was entirely expected and has come to the surprise of virtually no one. Markets have mostly taken it in stride as the major indexes barely budged once the news came out at 2:00 p.m. ET.

But markets have been up this week in anticipation of a rate cut. The Nasdaq Composite has gained about 5.4% over the past five days, while the S&P 500 is up about 3%. The Dow Jones and Russell 2000 indexes are both up about 2.5% over the past five days.

“Markets had priced in better than a 90% chance of a quarter-point cut, and the Fed delivered right on cue—no more “’Too Late’ Powell,” Gina Bolvin, president of Bolvin Wealth Management Group, said. “Now the spotlight shifts to the Magnificent Seven, with Meta reporting tonight. I’m optimistic. AI-driven capital spending and forward guidance from the Mag 7 will be the key catalysts moving markets in the near term.”

Lower interest rates are generally good for markets, because it spurs more investment by companies which in turn can spur growth.

Some 84% of interest rate traders anticipate another 25 basis point cut at the December 10 FOMC meeting, according to CME FedWatch.