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In September, Federal Reserve officials agreed to cut Interest rates by a half percentage point, marking the first time in over four years that such a significant move had been made. The decision was made to strike a balance between concerns over the labor market and confidence regarding Inflation. Some policymakers had preferred a smaller quarter percentage point reduction, expressing less worry about the jobs outlook and seeking assurance that Inflation was steadily decreasing.

Governor Michelle Bowman was the sole dissenting vote against the half-point cut, opting for a smaller quarter point reduction. This marked the first time a governor had dissented on an interest rate vote since 2005. While some participants expressed support for a 25 basis point reduction to allow for a gradual normalization of policy, a substantial majority favored the larger cut given the progress on Inflation and risk factors in the labor market.

Following the release of the meeting summary, markets showed little movement, with major averages continuing to see gains. Economic indicators since the meeting have revealed a stronger labor market than anticipated, with nonfarm payrolls increasing by more than expected and the unemployment rate dropping to 4.1%. This data has led to expectations that future rate cuts by the Fed may not be as aggressive as the September move.

Chair Jerome Powell and other Fed officials have indicated potential further rate cuts by the end of 2024. The minutes from the meeting highlighted the debate over the decision to approve the 50 basis point reduction, with some members also favoring a reduction at the previous July meeting that did not come to fruition. Under normal circumstances, the Fed typically prefers to cut rates in quarter-point increments.

Market pricing indicates that the fed funds rate could end 2025 in the 3.25%-3.5% range, aligning with median projections. Futures markets are now pricing in a possibility of the Fed not cutting rates at its upcoming meeting. The bond market has seen an increase in both 10- and 2-year Treasury yields since the Fed meeting.

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