The Federal Reserve cuts rates by 25 basis points to 3.50% to 3.75%

Impact of Fed Rate Cut

The Federal Reserve has cut the interest rate by 25 basis points as expected, bringing the target range to 3.50% to 3.75%. This decision is driven by moderate economic growth, slow job gains, and elevated inflation levels. Recent indicators are consistent with this view and indicate an increased uncertainty about the economic outlook.

Fed's Stance

The Fed aims to achieve maximum employment and return inflation to 2% in the long term, expressing concern about rising downside risks to employment. This prompts the committee to remain attentive to incoming data for any further adjustments in rates.

Market Reaction

Following the cut, there was notable movement in the stock market, with the Dow rising by 290 points, and the S&P also gaining slightly. However, the NASDAQ experienced a minor drop. The likelihood of a rate cut in April has now increased to 58% from 54%, reflecting market expectations of further easing. The Fed plans to monitor economic indicators closely and maintain adequate reserves by purchasing shorter-term Treasury securities, which could be viewed as a form of 'mini-QE', raising concerns over its broader implications for the market.