Fed cuts interest rates by a quarter point in its first reduction since 2008 and left open the door to cut rates again in the months ahead
Today's rate decision has traders more confident that the Fed will lower rates again in September.
Federal-funds futures show the market pricing in a 79% chance of another 25 basis point rate cut in September. That's up from around 60% earlier in the day and 54% on Tuesday, according to CME Group.The Fed also joined its decision to cut rates Wednesday with an early end to its bond-buying program. The Fed will stop shrinking its holdings as of Thursday, with its balance sheet at $3.8 trillion, against a peak of $4.5 trillion, which was itself up from a pre-crisis size of just over $800 billion. Most analysts see no economic impact from the early end to the wind-down, which was slated to end at the end of September.
Just about everything involving the balance sheet drew controversy: There’s still no consensus about the stimulus power of large-scale bond buying, and it’s unclear what real world impact shrinking holdings had either. At some point, the Fed will likely grow its holdings again, either to adjust the balance sheet for the size of the economy, or from stimulus efforts aimed at some future downturn when it arrives.
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