FOMC meeting’s takeaway: What it means for Wall Street and US dollar?

Debate for rate cut brought to rest with 50 bp as the conclusion

The debate for Federal Reserve (Fed)'s rate cut is finally brought to rest, with policymakers eventually opting 11 - 1 for a 50 basis point (bp) cut in line with broad market expectations. The ‘outsized’ cut was deemed as a front-loading move however, with the dot plot turning in less dovish than expected by pointing to a cumulative 50 bp of easing by this year. A logical deduction from markets will be a 25 bp for the November meeting, followed by another 25 bp for December.

Getting the jumbo cut over and done this time round seems to be a right move, which will offer the Fed more policy flexibility ahead and avoid the scenario of having to catch up aggressively if the economy were to face higher risks. Laying out a more gradual easing path ahead also offer some reassurances that the Fed is not in a rush to ‘panic’ ease, with economic conditions still displaying resilience.

Economic projections, Fed Chair comments offered some reassurances

Fresh projections show a downward revision in inflation forecast, which should justify recent rate move. While unemployment rate was revised higher to 4.4% (4.0% prior) and real gross domestic product (GDP) was a tad lower for 2024 (2.0% vs 2.1% prior), they are expected to maintain at these levels for 2025 and beyond. Overall, conditions may be softer than its June projections, but do not seem to be screaming for a recession ahead.

Fed Chair Jerome Powell called recent decision as a “strong start” to easing, and there are tons of emphasis on the strong economy and a soft landing to convince markets of today’s move as more of a policy recalibration. The Fed Chair mentioned that unemployment rate is “still a healthy level”, while upside risks to inflation have “diminished”.

Wall Street closed slightly lower post-Fed

Major US indices ended slightly lower overnight, following a whipsaw in the final hour of trading. There are much for market participants to digest, but there seems to be some sell-the-news at play with the Fed meeting now behind us. This comes as we head into the seasonally weaker period of the month, and with clarity on the path of Fed’s rate cuts ahead, attention will now be refocused back on upcoming economic data to justify the adjusted rate pricing, alongside developments around the upcoming US election and corporate earnings due next month.

Now, the post-Fed levels will be on watch. If major US indices managed to close above the overnight highs, it may suggest that the bulls are taking on greater control. This will come in the form of an all-time high close for the S&P 500 and a move above the 19,654 level for the Nasdaq 100.

US dollar finding room to recover after initial blip

Policymakers’ guidance for a more gradual pace of cuts ahead and strong calls for a soft landing have offered the US dollar some room to recover from its previous extreme bearish state. This comes as market rate expectations have recalibrated to a more gradual pace of easing, which brought US Treasury yields higher.

An initial dip in the US dollar found room to recover, as dip-buyers step in to defend the 100.40 level. Buyers may eye for a retest of the 101.50 level next, which the US dollar has failed to overcome on previous two occasions over the past month. With its daily relative strength index (RSI) back at its mid-line, any subsequent move above it could be an indication for near-term recovery.