Markets need time to digest 50-point rate cut

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Extra large 50 point cut
Federal Reserve Board The Federal Open Market Committee cut interest rates by a half percentage point, putting the federal funds rate at 4.75% to 5%. Fed members now expect interest rates to fall to 4.25% to 4.5% by the end of this year, which would mean another half-point cut by 2025. Members also raised their forecast for the unemployment rate this year to 4.4%, up from 4% projected in June.

The rate cut didn’t boost the market
US markets rose following the Fed’s 50-point interest rate cut but were unable to sustain the gains on Wednesday. S&P It fell 0.29% Dow It fell 0.25% Nasdaq The Hong Kong Stock Exchange fell 0.31%. However, Asia-Pacific markets rose on Thursday. Hang Seng Index It rose by about 1.8% as the city lowered interest rates.

Presidential Predictions
According to a CNBC poll, Vice President Kamala Harris is more likely to win the presidential election than former President Donald Trump. Of the 27 respondents, including investment strategists, economists and fund managers, 48% said they thought Harris was more likely to win, 41% thought Trump was more likely to win, and 11% said they didn’t know.

Taking the middle path
Bridgewater Associates founder Ray Dalio told CNBC that the upcoming US presidential election “is a game changer. [his] “Lifetime” and “Both [candidate] “That’s what the country needs,” he said. Dalio also said the economy is “relatively balanced,” but the Fed needs to “strike a balance” by keeping interest rates not too high or too low.

[PRO] Best-performing stocks after dividend cuts
The Fed’s half-point rate cut is likely to lower Treasury yields, driving investors chasing returns into riskier assets like stocks. But some stocks are more sensitive to interest rates than others. CNBC Pro combed the market to find the top 10 stocks that will rise the most after a rate cut.

The futures markets were right.

Just before the Federal Reserve meeting, the likelihood of a 50 basis point rate cut was expected to be 64%. CME FedWatchToolsIn contrast, a CNBC poll found that experts predominantly believe a 25-point cut is more likely.

Such forecasts can be considered completely disinterested, i.e., they are based on objective considerations of the state of the economy balanced against the risks of inflation.

These predictions also express hope and allow wishes to be actualized even in the absence of supporting evidence.

And if that wish comes true, it could send markets into a temporary state of panic.

After hitting record highs following the announcement of the Fed’s massive rate cut, the S&P 500 and Dow Jones Industrial Average closed lower, as did the Nasdaq Composite.

Markets are so driven by emotions that sometimes explanations and evidence defy interpretation, making it difficult to understand what happened.

That may have been in the back of Fed Chairman Jerome Powell’s mind, and he likely recognized that a larger-than-usual rate cut could mean the Fed is worried about the economy.

So Powell spent much of his post-meeting news conference trying to regulate his emotions.

“We are not seeing any immediate indications that a recession or even a downturn is becoming more likely,” Powell said.

So why did the Fed decide not to limit its rate cut to 25 basis points?

Seemingly anticipating the concerns, Chairman Powell said in his opening statement that the decision marked a “recalibration” of policy — in other words, the Fed’s big rate cut is a signal that the central bank is leading monetary policy making and not just reacting lazily to economic conditions.

It will take some time for investors to digest Powell’s promises — after all, markets are largely irrational creatures that instinctively react to the first major news stories.

–CNBC’s Jeff Cox, Yun Lee, Hakyung Kim and Samantha Subin contributed to this story.