Finance

The Federal Open Market Committee chose to lower its key overnight borrowing rate by a half percentage point, or 50 basis points, amid signs that inflation was moderating and the labor market was weakening.
It was the first interest rate cut since the early days of the Covid pandemic.
“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the Federal Reserve statement said.

WASHINGTON – The Federal Reserve on Wednesday enacted its first interest rate cut since the early days of the Covid pandemic, slicing half a percentage point off benchmark rates in an effort to head off a slowdown in the labor market.
With both the jobs picture and inflation softening, the central bank’s Federal Open Market Committee chose to lower its key overnight borrowing rate by a half percentage point, or 50 basis points, affirming market expectations that had recently shifted from an outlook for a cut half that size.

Outside of the emergency rate reductions during Covid, the last time the FOMC cut by half a point was in 2008 during the global financial crisis.
The decision lowers the federal funds rate to a range between 4.75%-5%. While the rate sets short-term borrowing costs for banks, it spills over into multiple consumer products such as mortgages, auto loans and credit cards.
In addition to this reduction, the committee indicated through its “dot plot” the equivalent of 50 more basis points of cuts by the end of the year, close to market pricing. The matrix of individual officials’ expectations pointed to another full percentage point in cuts by the end of 2025 and a half point in 2026. In all, the dot plot shows the benchmark rate coming down about 2 percentage points beyond Wednesday’s move.
“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the post-meeting statement said.

The decision to ease came “in light of progress on inflation and the balance of risks.” Notably, the FOMC vote was 11-1, with Governor Michelle Bowman preferring a quarter-point move. Bowman’s dissent was the first by a Fed governor since 2005, though a number of regional presidents have cast “no” votes during the period.

“We’re trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has come sometimes with this inflation. That’s what we’re trying to do, and I think you could take today’s action as a sign of our strong commitment to achieve that goal,” Chair Jerome Powell said at a news conference following the decision.
Trading was volatile after the decision with the Dow Jones Industrial Average jumping as much as 375 points after it was released, before easing somewhat as investors digested the news and considered what it suggests about the state of the economy.
Stocks ended slightly lower on the day while Treasury yields bounced higher.
“This is not the beginning of a series of 50 basis point cuts. The market was thinking to itself, if you go 50, another 50 has a high likelihood. But I think [Powell] really dashed that idea to some extent,” said Tom Porcelli, chief U.S. economist at PGIM Fixed Income. “It’s not that he thinks that’s not going to happen, it’s that he’s not he’s not pre-committing to that to happen. That is the right call.”
The committee noted that “job gains have slowed and the unemployment rate has moved up but remains low.” FOMC officials raised their expected unemployment rate this year to 4.4%, from the 4% projection at the last update in June, and lowered the inflation outlook to 2.3% from 2.6% previous. On core inflation, the committee took down its projection to 2.6%, a 0.2 percentage point reduction from June.
The committee expects the long-run neutral rate to be around 2.9%, a level that has drifted higher as the Fed has struggled to get inflation down to 2%.
The decision comes despite most economic indicators looking fairly solid.
Gross domestic product has been rising steadily, and the Atlanta Fed is tracking 3% growth in the third quarter based on continuing strength in consumer spending. Moreover, the Fed chose to cut even though most gauges indicate inflation well ahead of the central bank’s 2% target. The Fed’s preferred measure shows inflation running around 2.5%, well below its peak but still higher than policymakers would like.
However, Powell and other policymakers in recent days have expressed concern about the labor market. While layoffs have shown little sign of rebounding, hiring has slowed significantly. In fact, the last time the monthly hiring rate was this low – 3.5% as a share of the labor force – the unemployment rate was above 6%.
At his news conference following the July meeting, Powell remarked that a 50 basis point cut was “not something we’re thinking about right now.”
For the moment, at least, the move helps settle a contentious debate over how forceful the Fed should have been with the initial move.

However, it sets the stage for future questions over how far the central bank should go before it stops cutting. There was a wide dispersion among members for where they see rates heading in future years.
Investors’ conviction on the move vacillated in the days leading up to the meeting. Over the past week, the odds had shifted to a half-point cut, with the probability for 50 basis points at 63% just before the decision coming down, according to the CME Group’s FedWatch gauge.
The Fed last reduced rates on March 16, 2020, part of an emergency response to an economic shutdown brought about by the spread of Covid-19. It began hiking in March 2022 as inflation was climbing to its highest level in more than 40 years, and last raised rates in July 2023. During the tightening campaign, the Fed raised rates 75 basis points four consecutive times.
The current jobless level is 4.2%, drifting higher over the past year though still at a level that would be considered full employment.
“This was an atypical big cut,” Porceli said. “We’re not knocking on recessions’ door. This easing and this bit cut is about recalibrating policy for the fact that inflation has slowed so much.”
With the Fed at the center of the global financial universe, Wednesday’s decision likely will reverberate among other central banks, several of whom already have started cutting. The factors that drove global inflation higher were related mainly to the pandemic – crippled international supply chains, outsized demand for goods over services, and an unprecedented influx of monetary and fiscal stimulus.
The Bank of England, European Central Bank and Canada’s central bank all have cut rates recently, though others awaited the Fed’s cue.
While the Fed approved the rate cut, it left in place a program in which it is slowly reducing the size of its bond holdings. The process, nicknamed “quantitative tightening,” has brought the Fed’s balance sheet down to $7.2 trillion, a reduction of about $1.7 trillion from its peak. The Fed is allowing up to $50 billion a month in maturing Treasurys and mortgage-backed securities to roll off each month, down from the initial $95 billion when QT started.

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U.S. Federal Reserve Chair Jerome Powell speaks during a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., July 31, 2024. 
Kevin Mohatt | Reuters

The Federal Reserve projected lowering interest rates by another half point before the end of 2024, and the central bank has two more policy meetings to do so.
The so-called dot plot indicated that 19 FOMC members, both voters and nonvoters, see the benchmark fed funds rate at 4.4% by the end of this year, equivalent to a target range of 4.25% to 4.5%. The Fed’s two remaining meetings for the year are scheduled for Nov. 6-7 and Dec.17-18.

Through 2025, the central bank forecasts interest rates landing at 3.4%, indicating another full percentage point in cuts. Through 2026, rates are expected to fall to 2.9% with another half-point reduction.
“There’s nothing in the SEP (Summary of Economic Projections) that suggests the committee is in a rush to get this done,” Fed Chairman Jerome Powell said in a news conference. “This process evolves over time.”
The central bank lowered the federal funds rate to a range between 4.75%-5% on Wednesday, its first rate cut since the early days of the Covid pandemic.
Here are the Fed’s latest targets:

Arrows pointing outwards

“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the post-meeting statement said.

The Fed officials hiked their expected unemployment rate this year to 4.4%, from the 4% projection at the last update in June.
Meanwhile, they lowered the inflation outlook to 2.3% from 2.6% previously. On core inflation, the committee took down its projection to 2.6%, a 0.2 percentage point reduction from June.
— CNBC’s Jeff Cox contributed reporting.

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The Federal Reserve’s decision to lower interest rates by half a percentage point, announced on September 18th, is momentous for two reasons. As the first cut by America’s central bank since it lifted rates to quell inflation, it marks the start of a monetary-easing cycle. It also represents a bet by the Fed that inflation will soon be yesterday’s problem and that action is needed to support the labour market. For the first time since 2005, one of the Fed’s governors in Washington, DC, dissented from the decision. Michelle Bowman preferred to cut rates by a quarter-point. More

JPMorgan Chase created a new global role overseeing all junior bankers in an effort to better manage their workload after the death of a Bank of America associate in May forced Wall Street firms to examine how they treat their youngest employees.
The firm named Ryland McClendon its global investment banking associate and analyst leader in a memo sent this month, CNBC learned.
The memo specifically stated that McClendon would support the “well-being and success” of junior bankers.

JPMorgan Chase CEO and Chairman Jamie Dimon gestures as he speaks during the U.S. Senate Banking, Housing and Urban Affairs Committee oversight hearing on Wall Street firms, on Capitol Hill in Washington, D.C., on Dec. 6, 2023.
Evelyn Hockstein | Reuters

JPMorgan Chase has created a new global role overseeing all junior bankers in an effort to better manage their workload after the death of a Bank of America associate in May forced Wall Street to examine how it treats its youngest employees.
The firm named Ryland McClendon its global investment banking associate and analyst leader in a memo sent this month, CNBC has learned.

Associates and analysts are on the two lowest rungs in Wall Street’s hierarchy for investment banking and trading; recent college graduates flock to the roles for the high pay and opportunities they can provide.
The memo specifically stated that McClendon, a 14-year JPMorgan veteran and former banker who was previously head of talent and career development, would support the “well-being and success” of junior bankers.
The move shows how JPMorgan, the biggest American investment bank by revenue, is responding to the latest untimely death on Wall Street. In May, Bank of America’s Leo Lukenas III died after reportedly working 100-hour weeks on a bank merger. Later that month, JPMorgan CEO Jamie Dimon said his bank was examining what it could learn from the tragedy.
Then, starting in August, JPMorgan’s senior managers instructed their investment banking teams that junior bankers should typically work no more than 80 hours, part of a renewed focus to track their workload, according to a person with knowledge of the situation.
Exceptions can be made for live deals, said the person, who declined to be identified speaking about the internal policy.

Dimon’s warning

Dimon railed against some of Wall Street’s ingrained practices at a financial conference held Tuesday at Georgetown University. Some of the hours worked by junior bankers are just a function of inefficiency or tradition, rather than need, he indicated.
“A lot of investment bankers, they’ve been traveling all week, they come home and they give you four assignments, and you’ve got to work all weekend,” Dimon said. “It’s just not right.”
Senior bankers would be held accountable if their analysts and associates routinely tripped over the policy, he said.
 “You’re violating it,” Dimon warned. “You’ve got to stop, and it will be in your bonus, so that people know we actually mean it.”

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Steve Cohen is retiring from the trading floor at his hedge fund Point72.
Point72, which uses long/short, macro and systematic strategies, manages more than $35 billion.
The firm is planning to launch a separate, artificial intelligence-focused hedge fund to capitalize on the boom.

Steven Cohen, founder of Point72 and majority owner of the New York Mets, attends a news conference at Citi Field, the home stadium of MLB’s New York Mets, in Queens, New York, on Feb. 10, 2021.
Brendan McDermid | Reuters

Billionaire investor Steve Cohen is retiring from the trading floor at his hedge fund Point72.
The prominent hedge fund investor, who also owns the New York Mets, will continue his role as the co-chief investment officer at Point72, which Cohen converted from S.A.C. Capital Advisors in 2014 after lofty insider-trading settlements.

“He is taking a break from trading his own book and he feels he can have a greater impact by focusing on running the firm, driving strategic initiatives, and mentoring and coaching the next generation of talent,” a spokesperson at Point72 said.
Point72, which uses long/short, macro and systematic strategies, manages more than $35 billion. Most recently, the firm is planning to launch a separate, artificial intelligence-focused hedge fund to capitalize on the boom.
Earlier this year, Cohen came out as a long-term AI bull. He has called AI a “really durable theme” for investing, comparing the rise to the technological developments in the 1990s.
“There’s huge value in having Steve as an impactful mentor for our investment professionals; he’s been doing this for 40 years and he’s seen a lot,” Point72 said. “That’s what gives him the most satisfaction these days — helping people succeed and seeing it make a difference — and where he feels he can add the most value.”
Bloomberg News first reported on Cohen’s move away from trading earlier Tuesday.

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Apple is in discussions with JPMorgan Chase for the bank to take over the tech giant’s flagship credit card program from Goldman Sachs, a person with knowledge of the negotiations said.
The discussions are still early and could falter, and key elements of a deal — such as price and whether JPMorgan would continue certain features of the Apple Card — are yet to be decided, said the person, who declined to be identified.
The bank is seeking to pay less than face value for the roughly $17 billion in loans on the Apple Card because of elevated losses on the cards.

Apple CEO Tim Cook introduces the Apple Card during a launch event at Apple headquarters in Cupertino, California, on March 25, 2019.
Noah Berger | AFP | Getty Images

Apple is in discussions with JPMorgan Chase for the bank to take over the tech giant’s flagship credit card program from Goldman Sachs, a person with knowledge of the negotiations said.
The discussions are still early and key elements of a deal — such as price and whether JPMorgan would continue certain features of the Apple Card — are yet to be decided, said the person, who requested anonymity to discuss the nature of the potential deal. The talks could fall apart over these or other matters in the coming months, this person said.

But the move shows the extent to which Apple’s choices were limited when Goldman Sachs decided to pivot from its ill-fated retail banking strategy. There are only a few card issuers in the U.S. with the scale and appetite to take over the Apple Card program, which had saddled Goldman with losses and regulatory scrutiny.
JPMorgan is the country’s biggest credit card issuer by purchase volume, according to the Nilson Report, an industry newsletter.
The bank is seeking to pay less than face value for the roughly $17 billion in loans on the Apple Card because of elevated losses on the cards, the person familiar with the matter said. Sources close to Goldman argued that higher-than-average delinquencies and defaults on the Apple Card portfolio were mostly because the users were new accounts. Those losses were supposed to ease over time.
But questions around credit quality have made the portfolio less attractive to issuers at a time when there are concerns the U.S. economy could be headed for a slowdown.
JPMorgan is also seeking to do away with a key Apple Card feature known as calendar-based billing, which means that all customers get statements at the start of the month rather than staggered throughout the period, the person familiar with the matter said. The feature, while appealing to customers, means service personnel are flooded with calls at the same time every month.
Apple and JPMorgan declined to comment on the negotiations, which were reported earlier by The Wall Street Journal.

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This week’s gathering of the central bank’s Federal Open Market Committee carries an uncommon air of mystery.
Will it be the traditional quarter-percentage-point, or 25-basis-point, rate reduction, or will the Fed take an aggressive first step and go 50 basis points, or half a point? Fed watchers are unsure.
Beyond the quarter vs. half debate, this will be an action-packed Fed meeting, with updates on projections for rates cuts in the future as well as adjustments to economic estimates.

Federal Reserve Chairman Jerome Powell takes a question from a reporter during a news conference following a Federal Open Market Committee meeting at the William McChesney Martin Jr. Federal Reserve Board Building on July 31, 2024 in Washington, DC. 
Andrew Harnik | Getty Images

For all the hype that goes into them, Federal Reserve meetings are usually pretty predictable affairs. Policymakers telegraph their intentions ahead of time, markets react, and everyone has at least a general idea of what’s going to happen.
Not this time.

This week’s gathering of the central bank’s Federal Open Market Committee carries an uncommon air of mystery. While markets have made up their collective mind that the Fed is going to lower interest rates, there’s a vigorous debate over how far policymakers will go.
Will it be the traditional quarter-percentage-point, or 25-basis-point, rate reduction, or will the Fed take an aggressive first step and go 50, or half a point?
Fed watchers are unsure, setting up the potential for an FOMC meeting that could be even more impactful than usual. The meeting wraps up Wednesday afternoon, with the release of the Fed’s rate decision coming at 2 p.m. ET.
“I hope they cut 50 basis points, but I suspect they’ll cut 25. My hope is 50, because I think rates are just too high,” said Mark Zandi, chief economist at Moody’s Analytics. “They have achieved their mandate for full employment and inflation back at target, and that’s not consistent with a five and a half percent-ish funds rate target. So I think they need to normalize rates quickly and have a lot of room to do so.”
Pricing in the derivatives market around what the Fed will do has been volatile.

Until late last week, traders had locked in on a 25-basis-point cut. Then on Friday, sentiment suddenly shifted, putting a half point on the table. As of Wednesday afternoon, fed funds futures traders were pricing in about a 63% chance of the bigger move, a comparatively low level of conviction against previous meetings. One basis point equals 0.01%.
Many on Wall Street continued to predict the Fed’s first step would be a more cautious one.
“The experience of tightening, although it seemed to work, didn’t work exactly how they thought it was going to, so easing should be viewed with just as much uncertainty,” said Tom Simons, U.S. economist at Jefferies. “Thus, if you’re uncertain, you shouldn’t rush.”
“They should move quickly here,” Zandi said, expressing the more dovish view. “Otherwise they run the risk of something breaking.”
The debate inside the FOMC meeting room should be interesting, and with an unusual division among officials who generally have voted in unison.

“My guess is they’re split,” former Dallas Fed President Robert Kaplan told CNBC on Tuesday. “There’ll be some around the table who feel as I do, that they’re a little bit late, and they’d like to get on their front foot and would prefer not to spend the fall chasing the economy. There’ll be others that, from a risk management point of view, just want to be more careful.”
Beyond the 25 vs. 50 debate, this will be an action-packed Fed meeting. Here’s a breakdown of what’s on tap:

The rate wait

The FOMC has been holding its benchmark fed funds rate in a range between 5.25%-5.5% since it last hiked in July 2023.
That’s the highest it’s been in 23 years and has held there despite the Fed’s preferred inflation measure falling from 3.3% to 2.5% and the unemployment rate rising from 3.5% to 4.2% during that time.
In recent weeks, Chair Jerome Powell and his fellow policymakers have left no doubt that a cut is coming at this meeting. Deciding by how much will involve a calculus between fighting inflation while staying mindful that the labor market has slowed considerably in the past several months.
“For the Fed, it comes down to deciding which is a more significant risk — reigniting inflation pressures if they cut by 50 bps, or threatening recession if they cut by just 25 bps,” Seema Shah, chief global strategist at Principal Asset Management, said in written commentary. “Having already been criticized for responding to the inflation crisis too slowly, the Fed will likely be wary of being reactive, rather than proactive, to the risk of recession.”

The ‘dot plot’

Perhaps just as important as the rate cut will be the signals meeting participants send about where they expect rates to go from here.
That will happen via the “dot plot,” a grid in which each official will signal how they see things unfolding over the next several years. The September plot will offer the first outlook for 2027.
In June, FOMC members penciled in just one rate cut through the end of the year. That almost surely will accelerate, with markets pricing in the equivalent of up to five, or 1.25 percentage points, worth of cuts (assuming 25 basis point moves) with only three meetings left.
In all, traders see the Fed hacking away at rates next year, taking off 2.5 percentage points from the current overnight borrowing rate before stopping, according to the CME Group’s FedWatch gauge of futures contracts.
“That feels overly aggressive, unless you know the economy is going to start to weaken more significantly,” Zandi said of the market’s outlook. Moody’s expects quarter-point cuts at each of the three remaining meetings this year, including this week’s.

Economic projections

The dot plot is part of the FOMC’s Summary of Economic Projections, which provides unofficial forecasts for unemployment, gross domestic product and inflation as well.
The biggest adjustment for the SEP likely will come with unemployment, which the committee almost certainly will ratchet up from the 4.0% end-year forecast in June. The jobless rate currently stands at 4.2%.
Core inflation, pegged in June at 2.8% for the full year, likely will be revised lower, as it last stood at 2.6% in July.
“Inflation appears on track to undershoot the FOMC’s June projections, and the higher prints at the start of the year increasingly look more like residual seasonality than reacceleration. A key theme of the meeting will therefore be a shift in focus to labor market risks,” Goldman Sachs economists said in a note.

The statement and the Powell presser

In addition to adjustments to the dot plot and SEP, the committee’s post-meeting statement will have to change to reflect the expected rate cut along with any additional forward guidance the committee will add.
Released at 2 p.m. ET, the statement and the SEP are the first things to which the market will react, followed by the Powell press conference at 2:30.
Goldman expects the FOMC “will likely revise its statement to sound more confident on inflation, describe the risks to inflation and employment as more balanced, and re-emphasize its commitment to maintaining maximum employment.”
“I don’t think that they’re going to be particularly specific about any kind of forward guidance,” said Simons, the Jefferies economist. “Forward guidance at this point in the cycle is of little use when the Fed doesn’t actually know what they’re going to do.” More

“The Fed should act in the way that the data indicates that they should act. Period,” said Rep. Patrick McHenry, R-N.C., chair of the House Financial Services Committee.
Democratic Sens. Elizabeth Warren of Massachusetts, John Hickenlooper of Colorado and Sheldon Whitehouse of Rhode Island have called for the Fed to cut its benchmark rate by three-quarters of a percentage point, which is higher than the most aggressive market expectations.
Former President Donald Trump said in an August press conference that he believes he should get a say on monetary policy if he wins in November.

U.S. Rep. Patrick McHenry, R-N.C., speaks to members of the media outside the office of U.S. House Speaker Kevin McCarthy, R-Calif., at the U.S. Capitol in Washington on Oct. 3, 2023.
Mandel Ngan | AFP | Getty Images

Rep. Patrick McHenry, R-N.C., sharply criticized other politicians on Tuesday for making public comments about what the Federal Reserve should do with its interest rate policy.
McHenry, the outgoing chair of the House Financial Services Committee, said it was an ‘”outrage” that some politicians are publicly lobbying the central bank about rate cuts.

“The outrage to me is … for instance, if you’re on the right, you say the Fed should be independent, except I think right now they should do this. And on the left, the same,” said McHenry, who is retiring from Congress at the end of this term.
“Senators that are trying to direct the Fed on rate policy are really demeaning their role. … They’re demeaning their role as a United States Senator,” he added.
McHenry’s comments came one day before the U.S. central bank is widely expected to start cutting interest rates for the first time since 2020. Coming in the middle of a presidential election cycle, the change in Fed policy has stirred speculation as to whether the central bank would be influenced by political considerations. Chair Jerome Powell, first appointed by Trump and reappointed by President Joe Biden, has repeatedly denied that is a factor.
On Monday, Democratic Sens. Elizabeth Warren of Massachusetts, John Hickenlooper of Colorado and Sheldon Whitehouse of Rhode Island called for the Fed to cut its benchmark lending rate by 0.75 percentage points, which is higher than the most aggressive market expectations. Warren and Whitehouse are both running for reelection in November, while Hickenlooper’s term ends in 2026.
Republicans who have weighed in include former President Trump, who said in an August press conference that he believes he should get a say on monetary policy if he wins in November. Sen. Mike Lee, R-Utah, also introduced a bill earlier this year that would abolish the Fed.

When asked about Trump’s remarks, McHenry said “all presidents think they should give an input” but that the central bankers should ignore statements from politicians.
“The Fed should act in the way that the data indicates that they should act. Period,” McHenry said.
The remarks came at a conference hosted by Georgetown University’s Psaros Center for Financial Markets and Policy.

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