Monetary Policy Shift and Rate Cuts
On September 18th, a major shift in U.S. monetary policy took place when the Federal Reserve announced a 50 basis point interest rate cut. This marked the largest initial rate cut since 2007 and signaled the beginning of a new easing cycle. The decision came as a surprise to some market participants, who had initially expected a smaller cut of 25 basis points. However, just days before the announcement, expectations shifted toward a 50 basis point reduction, reflecting rising concerns about economic conditions.
The Federal Reserve’s move was aimed at preempting a potential recession, driven by concerns about the state of the labor market and broader economic indicators. Despite inflation moderating closer to the Fed’s 2% target, the rising unemployment rate prompted action. The unemployment rate had increased from 4.1% to 4.3%, leading the Fed to act more aggressively than anticipated.
Labor Market Weakness and Unemployment Projections
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