Aggressive start to Fed rate cuts

A highly anticipated rate cut by the US Federal Reserve (Fed) finally arrived this month, the first Fed cut in more than four years. The Fed opted to front-load policy easing, cutting rates by 50 bps, taking the target range for the Fed funds rate to 4.75–5.0%. The rationale is that with the recent easing in inflationary pressures and softening in the labour market, current rates are unnecessarily restrictive and there is quite some distance to a neutral policy rate. Therefore, a bigger first step makes sense. Initial market reaction interpreted the Fed move purely as front-loading and pricing puts the Fed funds rate at around 3% by mid-2025.