Investing Updates : Fed Rate Cut

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OpenAI

On September 18, 2024, the Federal Reserve announced a significant cut in its benchmark interest rate by 50 basis points, reducing the federal funds rate to a range of 4.75% to 5%. This marked the first rate cut since March 2020 and was a pivotal shift from the Fed’s recent focus on inflation control. The cut reflects the Fed’s confidence that inflation is under control and signals its efforts to protect the labor market amid signs of economic cooling.

Market Reaction:

- Stock Markets: Major stock indexes such as the S&P 500 and Nasdaq reacted positively, with both gaining following the announcement. Small-cap stocks led the rally, suggesting optimism among investors, particularly in sectors that are more sensitive to interest rates. However, the market also experienced some volatility, with Treasury yields fluctuating immediately after the decision.

- Economic Outlook: Fed Chair Jerome Powell highlighted the importance of balancing economic growth and inflation, stressing that the Fed would be cautious with future rate changes. He acknowledged that while inflation is nearing the Fed’s 2% target, reducing rates too quickly could risk inflation rising again. Powell also noted that the labor market remains robust, which supports the Fed’s confidence in making this rate adjustment.

The Fed hinted that more rate cuts are likely by the end of the year, though Powell emphasized a gradual approach going forward to avoid destabilising the economy. Investors remain hopeful, though cautious, about how these cuts will impact broader economic conditions, especially in housing and consumer lending.

My Thoughts

• Here we go, first Fed rate cut finally done 👏

• Positive reactions for both equities and crypto so far. Things such as SSB, T-Bills, Savings interest rates will start to come down soon. 

• If you are in 60s or retirement phase, best to lock in stable purchases now. If you are 40s like me, SG REIT ETFs have not reach all time highs yet. Some pullback is expected and it may be wise to put some when it happens.