Fed cuts rates 0.5% at September 2024 meeting, markets tumble

The Federal Reserve lowered the target federal‑funds rate by 50 basis points on Wednesday, marking the expected cut but accompanied by Chairman Jerome Powell’s warning that future easing will be “cautious,” prompting a sharp sell‑off in equities and a jump in Treasury yields【1】.

Market reaction to the Fed’s guidance

The Dow Jones Industrial Average fell more than 1,000 points, while the MSCI Asia‑Pacific index outside Japan slipped 1 % and Japan’s Nikkei dropped 1.8 % as Asian markets mirrored Wall Street’s move【1】. Treasury yields rose, with the benchmark 10‑year note reaching 4.524 %—its highest in seven months—before easing slightly to 4.51 % in early Asian trading【1】. The dollar index climbed to 108.15, the strongest level since November 2022, reflecting the market’s shift toward a stronger dollar after the Fed’s more hawkish tone【1】.

Policy context and forward guidance

Powell emphasized that “from here it’s a new phase and we’re going to be cautious about further cuts,” signaling a slowdown in the pace of easing that diverges from the two quarter‑point cuts projected earlier in the year【1】. Federal‑reserve officials now expect only two 25‑basis‑point reductions by the end of 2025, half a percentage point fewer than the cuts anticipated in September【1】. This adjustment aligns with the “higher for longer” inflation outlook that analysts say reinforced the Fed’s more restrained stance【1】.

Implications for the yen and BOJ policy

The rise in US yields and the firm dollar added pressure on the yen, which hovered around ¥154.8 per dollar—down more than 8 % year‑to‑date—and touched a one‑month low of ¥154.88 earlier in the session【1】. Traders now price only a 20 % chance of a Bank of Japan hike later Thursday, with expectations for the next increase pushed from December to January and a total of 44 bps of hikes priced in through 2025【1】.

What to watch

• The Bank of Japan’s policy decision later Thursday and any shift in its rate‑hike probability.
• US Treasury yields, especially the 10‑year benchmark, for signs of further upside or a ceiling.
• Dollar index movements around the 108‑level, which could signal market reassessment of Fed guidance.

The Fed’s half‑point cut underscores a pivot from aggressive easing to a more measured approach, leaving markets to price in a slower trajectory for future rate reductions while keeping an eye on inflation data and central‑bank actions abroad.