As investors digest the Federal Reserve cutting the fed funds target rate by 50 basis points, its first cut in four years, Greg Daco, EY chief economist, and Ann Berry, Threadneedle Ventures founder, join Seana Smith and Josh Lipton on Market Domination to break down what Jerome Powellâs remarks say about the US economy and the marketâs (^DJI,^GSPC, ^IXIC) reaction. Daco highlights three takeaways from the press conference: Powell is focused on recalibrating monetary policy, the Fed is not on a preset course, and Powell holds a strong influence on policymakers as most officials got on board with his view that a 50 basis point cut was appropriate. The economist notes that, in his view, a âkey downsideâ of Powellâs remarks was âthe fact that he remained very much data dependent.â He says, âI wanted to see a little bit more of a forward-looking perspective and where we’re headed and how fast we’re headed.â Berry adds she was disappointed Powell wasnât asked if the Fed is âgoing to start using different data setsâ since the economic data used is âbackward-looking. We’re in the age of incredible data collection [and] incredible technology. What is the Fed doingâŠabout what different kinds of data can help them be better forward-looking.â Daco says itâs âit’s very encouraging not to see much reaction in the markets, because essentially the Fed did what was largely expected over the last couple of days.â If the Fed had cut less than the market expected, âthe risk would have been a repricing of rates higherâ and âyields rise rapidly and that that hits mortgage rates, consumer rates, auto loan rates and that deters private sector activity.â For the average consumer, the economist says the rate cut will likely have minimal impact. âYou actually have a fairly limited effect of the Fed’s easing or tightening because it’s 25 basis point incrementsâŠSo that 25 basis point [or] 50 basis point doesn’t do a whole great deal in terms of stimulating or cutting economic activityâ in regard to mortgages, auto loans, and consumer rates. He notes, âIf you have a broad rise in rates of 50 basis points or higher in the opposite direction, that can rapidly deter economic activity," which does impact the average consumer.
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