Copyright Reuters
NEW YORK, Oct 29 (Reuters) - A divided U.S. Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday and announced it will restart limited purchases of Treasury securities after money markets showed signs that liquidity was becoming scarce, a condition the U.S. central bank has pledged to avoid. The 10-2 decision to lower the policy rate to a range of 3.75%-4.00% was expected by investors as a way for the Fed to temper any further decline in a job market policymakers worry may be losing steam. Sign up here. MARKET REACTION: BONDS: The yield on benchmark U.S. 10-year notes inched higher and was up 4 basis points to 4.0274%. The 2-year note yield was 3.5 basis points higher to 3.5265%. FOREX: The dollar index extended gains and was last up 0.2% to 98.869, with the euro down 0.1% at $1.1643. COMMENTS: CHRISTOPHER HODGE, CHIEF U.S. ECONOMIST, NATIXIS, NEW YORK: "The most surprising part of the meeting was the dissent from Schmid. Powell has been very effective at rallying the FOMC to a consensus (excluding Miran) and presumably compromising on communication in exchange for a vote with the majority. I think we can expect more of this as Powell’s term as Chair comes to an end and the Fed’s mandate is stretched in both directions." MATT MISKIN, CO-CHIEF INVESTMENT STRATEGIST, MANULIFE JOHN HANCOCK INVESTMENTS, BOSTON: "The Fed looks pretty divided again with some dissents going in opposite directions. With one wanting no cut and another wanting a 50 basis point cut it leaves you with a lack of clarity off the bat. But actions speak louder than words and cutting 25 basis points and announcing a plan for stopping quantitative tightening are both a dovish tilt that they delivered." "They're still saying inflation remains somewhat elevated. What we keep thinking about is if it's simply lagged because housing data has not fully caught up with the inflation rate. You're going to see two camps read this. One will say it's a policy mistake and that they shouldn't have cut because the economy is fine. The other camp will say they didn't update their statement to reflect the weakness in the job market and the lagged inflation data for housing." "I think the statement does not reflect weakness in the labor market and it's suggesting inflation is hotter than the underlying data. It's a difficult time to be a Fed member because the government is closed and the data quality keeps deteriorating. This adds to the issue." BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN: "The end is near, for QT. Rather than risk a blow-up in short-term debt markets, it only made sense to stop QT. There were already some signs of stress, so there was little to be gained in pushing QT further." "In a head nod to the dearth of data, the Fed had to qualify the entire statement by saying “available indicators,” because there aren’t a lot of them with the government shutdown. The dissents weren’t surprising, so this was a no surprise kind of statement." "Chair Powell will likely do the verbal equivalent of shrugging his shoulders during the press conference if asked about future cuts." MICHELE RANERI, VICE PRESIDENT AND HEAD OF U.S. RESEARCH AND CONSULTING, TRANSUNION, CHICAGO: "While the full economic impact of the Fed move will unfold over time, early indicators suggest that even a modest rate cut can have meaningful consequences for consumer behavior and financial health." "We've already observed a notable uptick in year-over-year activity across several credit products. Mortgage rates, in particular, have responded swiftly. Just in the past week, they fell to their lowest level in over a year." "While inflation continues to exert pressure on household budgets, rate cuts offer a potential counterbalance by lowering debt servicing costs. Though the broader implications for consumer financial health remain to be fully seen, the early signs point to increased credit activity and potential relief for borrowers. As we monitor the evolving landscape, we'll continue to assess how monetary policy shifts are shaping consumer behavior and credit market dynamics." MICHAEL BROWN, SENIOR RESEARCH STRATEGIST, PEPPERSTONE, LONDON: "As expected, and as had been fully discounted by money markets, the FOMC delivered a 25bp cut to the fed funds rate at the conclusion of the October meeting, lowering the target range to 3.75% - 4.00%." "Such a move marks the second straight rate cut from the Fed, following an equal move in September, and leaves the fed funds rate at its lowest level since the summer of 2022, as policymakers seek to prop up a stalling U.S. labor market, and as tariffs produce a lesser degree of upside inflation risks than had been anticipated a few months ago." Compiled by the Global Finance & Markets Breaking News team
