Market Commentary | Oct 14, 2024
3Q2024 Market Commentary: The Great Recalibration
Michael J. AroestyCFP®
CFP®
“Today, unemployment is up to 4.2 percent, inflation’s down to a few tenths above 2. So, we know that it is time to recalibrate our policy to something that is more appropriate given the progress on inflation, and on employment, moving to a more sustainable level, so the balance of risks are now even.”
-Jerome Powell, Chairman of the Federal Reserve
After thirty long months, the Federal Reserve officially began easing monetary policy in September. The Central Bank slashed its benchmark rate with a front-loaded 50 basis point reduction. The first cut may be the deepest. Chairman, Jerome Powell, characterized the move as a “recalibration” intended to shift policy action from fighting inflation toward safeguarding employment and economic growth. Since peaking at 9% in 2022, inflation has steadily declined toward the Fed’s 2% target.
The decision to cut rates by 0.50%, as opposed to the 0.25% expected by investors, was deemed necessary not only because inflation had fallen faster than anticipated, but also because the labor market deteriorated at a swifter pace than forecast. The magnitude of the cut helped the Fed get back onsides with both dynamics. In general, we agree that relative to the employment and inflation data – the two components of the Federal Reserve’s “dual mandate” – interest rates well above 5% were too restrictive.
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Michael J. Aroesty
CFP®