First Fed interest rate cut in 4 years sized at 50 bps

The Federal Reserve reduced interest rates by 50 basis points Wednesday — a divergence from some industry watchers who expected a more conservative initial cut.  

Fed Chair Jerome Powell had made it clear the central bank intended to reduce rates, noting last month: “The time has come for policy to adjust.”

In a statement this afternoon, the Federal Open Market Committee (FOMC) said the decision came “in light of the progress on inflation and the balance of risks.”

“The committee has gained greater confidence that inflation is moving sustainably toward [2%], and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the committee noted. “The economic outlook is uncertain, and the committee is attentive to the risks to both sides of its dual mandate.”

Ahead of the expected rate reduction from its previous 5.25%-5.50% range, the question remained whether the cut would amount to 25bps or 50bps.

CME Group’s FedWatch tool indicated a 55% probability of a 50bps cut a couple hours before the FOMC’s statement. 

Some industry watchers and executives had said that while investors could view a 25bps cut as a normal measure, a 50bps cut could spur fears of a recession and bring on volatility. 

“The Fed has only cut 50bps in a non-emergency situation once in the past 40 years,” Astoria Portfolio Advisors founder John Davi wrote in a blog post earlier this week. “In our view, the Fed would be making a mistake as it would imply the economy is much weaker than currently suggested.”

Still, the Fed opted for the cut of 50bps.

Jake Ostrovskis, OTC Trader at Wintermute, said in a statement earlier today that “some degree of market re-pricing is inevitable, regardless of the decision” given the differing cut expectations.

Bitcoin’s price — at about $60,000 just before 2 pm ET — initially saw a bump above $60,700 in the minutes following the rate cut announcement. 

Many expect the Fed to cut at the FOMC’s upcoming meetings slated for Nov. 7 and Dec. 18. A number of analysts had said the market was pricing in a total of 100bps — including Wednesday’s cut — in rate reductions by the end of the year.

FOMC members’ median projection in June was 25bps of interest rate cuts by the end of 2024. Latest projections released Wednesday show committee members have a median expectation of rates falling in the 4.25%-4.5% range (down from the current 4.75%-5.0%) by the end of the year. One policy maker anticipates 75bps of additional rate cuts by the year’s end.

Powell was set to give remarks during a press conference at 2:30 pm ET. 

“Beyond the initial headline cut … the market will focus on forward guidance and the rate path through 2024-2025,” Ostrovskis said. “Questions surrounding the strength of the labor market and reaction function will likely be asked during the Q&A session.”

Casey Wagner contributed reporting.

---

Get the news in your inbox. Explore Blockworks newsletters:

• Blockworks Daily: The newsletter that helps thousands of investors understand crypto and the markets, by Byron Gilliam.
• Empire: Start your morning with the top news and analysis to inform your day in crypto.
• Forward Guidance: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.
• 0xResearch: Alpha directly in your inbox. Market highlights, data, degen trade ideas, governance updates, token performance and more.
• Lightspeed: Built for Solana investors, developers and community members. The latest from one of crypto’s hottest networks.
• The Drop: For crypto collectors and traders, covering apps, games, memes and more.