Fed rate cut "not as dovish" as some analysts had predicted - Yardeni Research

Investing.com - The Federal Reserve’s interest rate cut last week was not as dovish as some market participants seem to have expected, according to analysts at Yardeni Research.

But in a note to clients, the analysts said that "relatively muted" gains in stocks after the Fed’s decision was an indication that the move had already been priced in by markets.

The Fed lowered its benchmark federal funds rate by 25 basis points to a target range of 4.00% to 4.25% last Wednesday, delivering its first rate reduction since December.

Updated projections released after the meeting showed a majority of policymakers expect two more cuts in 2025, underscoring the central bank’s shift toward supporting a cooling labor market while still keeping an eye on persistent inflation.

Fed Chair Jerome Powell, speaking at his post-decision press conference, described the move as a “risk-management” step, saying officials wanted to guard against the possibility of a sharper rise in unemployment.

The decision was not unanimous. Newly appointed Governor Stephen Miran cast the lone dissent, arguing for a deeper 50 basis point cut.

His so-called “dot” on the Fed’s rate outlook was the most aggressive, projecting rates as low as 2.875% by the end of 2025, well beneath the consensus of his colleagues.

The dissent highlighted growing debate inside the central bank over how forcefully to respond to shifting economic conditions.

"In his presser, Powell stated that Fed policy remains tight notwithstanding the latest rate cut," the Yardeni analysts said, referring to a monetary policy stance that aims to restrict economic activity and reduce inflation.

The Fed’s projections showed that most policymakers expect the economy to expand by 1.6% this year, above June’s forecast. The year-end jobless rate is seen at 4.5% and underlying inflation at 3.1%. Price gains are now not anticipated to slow to the Fed’s 2% target until 2028.