After jumbo Fed rate cut, market hopes ride on U.S. soft landing

One of the most consequential Federal Reserve meetings in recent history has put investors’ focus squarely on one question: whether the central bank has kicked off its rate cutting cycle in time to keep the economy from slowing too rapidly.

Prospects of a “soft landing,” where the Fed brings down inflation without pushing the economy into recession, have lifted stocks and bonds this year, though signs of a softening labor market have fueled worries that the Fed may be too late in acting to shore up growth. In comments following the decision, Powell called the move a “recalibration” to account for the sharp decline in inflation since last year and said the central bank wanted to stay ahead of any potential weakening in the jobs market.“Despite what Chair Powell is saying in the press conference, a 50 basis point move does indicate that there is concern that they are behind the curve,” said Josh Emanuel, chief investment officer at Wilshire.

“I think that this dramatically increases the odds of the Fed being able to stick the landing, which ultimately will be bullish for risk assets,” said Jeff Schulze, head of economic and market strategy at ClearBridge Investments. “I think the markets got ahead of themselves again in terms of interpreting that data was very soft,” he said. “Chair Powell said it’s a solid economy, and it is.”Fed officials updated their views on interest rates from their latest June projections, but while they now anticipate deeper cuts, those rate forecasts remained above market expectations of a more accommodative central bank.

“In terms of the pace at which cuts were priced in, I think this is a right reaction,” said John Madziyire, head of U.S. Treasuries and TIPS at Vanguard, who was betting on long-term yields moving higher.

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