The Fed Cuts Rates 3rd Time in 2019

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Just as we expected the sun to rise today October 30, 2019, Fed Chairman Powell announced a 3rd straight Rate Cut in a tight trio of Fed Cuts this year.  The rate cut surprised nearly no one – especially those excited by charts, graphs and economic policy.

Fed’s 3rd Rate Cut in 2019 Surprises Few

Most Financial analysts expected the Fed Rate Cut to occur just as it did today by -.25%.  In these situations, consumers and financial experts (mostly the latter) are referred to as “the market”.  Heavy is the weight given to what market expectations of the Fed’s policy decisions are prior to the actual Fed announcement.

Often, the alignment of these market expectations leading up to the Fed Announcement are supremely critical.  In fact, stocks and bonds typically react less to the actual Fed Decision itself than to the alignment it had with expectations.  However, when a Fed Decision defies markets expectations Wall Street is often abuzz trying to make sense of and catch up to the shock post Fed Announcement. 

Mortgage rates are digesting the cut like a glass of water – so far, not much movement.  However, the reaction and trends that result with home loan rates are not typically direct or immediate.

Markets Move When Fed Stuns

Imagine the consensus leading up to the Fed Announcement was the Fed will not cut rates.  Then, pretend the Fed Chair announces to a stunned audience they in fact lowered rates.   This is an example of a time financial markets could jump or fall sharply upon hearing the unexpected news. 

The Rate Cut on October 30, 2019 did not stun anyone.  Approximately 75% of folks who’s opinions are tallied believed a rate cut was imminent.  Whether those same folks agree is another matter.  Their expectation is all we are tracking here and the Fed did not prove them wrong.

What is Next

For now the Fed is poised to act as needed.   Powell shared in very Fed-ish (meaning not overly specific or direct terms) no decision is made regarding future cuts at the last 2019 meeting.  Instead, he shared the Fed is watching inflation and until that goes over the 2.0% target is not likely.

By Jeremy House

 

 

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