US Yields Fall as Powell Gives ‘No Skip Signs’: Markets Wrap

(Bloomberg) — Stocks hit fresh all-time highs, Treasury yields fell and the dollar dropped the most since August, with traders keeping a close eye on Jerome Powell’s remarks after the Federal Reserve cut rates by a quarter percentage point to support the economy.

The S&P 500 was up 0.7%. Treasury 10-year yields declined nine basis points to 4.34%. The Bloomberg Dollar Spot Index fell 0.7%. The Fed Chair said he doesn’t rule “out or in” a December rate cut. He said recent indicators suggest the economy keeps expanding solidly. While inflation expectations remain anchored, core prices remain somewhat elevated, he said. Powell added that in the near term, the election will have no effect on policy.

US policymakers voted unanimously to lower benchmark rate to a target range of 4.5%-4.75%. They tweaked language to note “labor market conditions have generally eased,” and repeated “the unemployment rate has moved up but remains low.” The statement removed the reference to “further” inflation progress, noting inflation “has made progress toward the committee’s 2% objective but remains somewhat elevated”.

Wall Street’s Reaction to Fed:

No skip signs here. I believe that it is a good thing that the Fed did not lay the blame on the recent labor market slowdown on the hurricanes or strikes. They are just sticking with have generally eased. This statement does not put a December skip in play.

The Fed meeting today provided little drama for market matchers as a 25 basis point rate cut was fully expected.

We believe the Fed will proceed cautiously in 2025 assessing if President Trump’s economic proposals eventually become actual policies and how those policies end up affecting inflation, labor markets and overall economic growth. As always, the Fed will be led by the economic data. 

The balance of risks gives the Fed ample room to lower the Fed Funds rate well into 2025.  Markets should not expect supersized rate cuts unless the economy turns south, and doesn’t look at all likely for awhile.

With additional inflation and employment data in, the Fed went 25 basis points as expected.  We expect the same to occur in December.  However, stronger data and uncertainty over fiscal and trade policies mean rising risks that the Fed may opt to slow the pace of easing. The word “skip” could enter our vocabulary in 2025.

The Federal Reserve continues to lift the foot off the brake pedal, cutting interest rates by one-quarter percentage point, as expected. The solid pace of economic growth means the Fed can abandon the urgency seen with the half-point cut in September and take a more deliberate, quarter-point pace with this and future rate cuts.

Investors are searching for equilibrium after reeling from such large moves in rates over the course of the last two months. Predictably, investors had developed unreasonable expectations about the magnitude of rate cuts over the next few quarters and now with a focus on deficits, markets must reorient to reality.

Some of the main moves in markets:

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Rheaa Rao.

More stories like this are available on bloomberg.com