Powell Surprises: Fed Initiates Cutting Cycle, Fuels Market Optimism

Finally, after four years, the Federal Reserve began its rate reduction cycle and did so with a 50 basis point cut, pleasantly surprising the market. The Fed seeks to balance economic growth without harming the labor market. In turn, the rate is expected to be cut another 50 basis points this year and another 100 basis points in 2025. This move reflects a proactive approach to avoid a recession and achieve a "soft landing." Once again, Fed Chairman Jerome Powell clarified that rate decisions will depend on the data as it comes in, with no pre-set pace.

Despite the uncertain macroeconomic environment, US consumers continue to show resilience. Retail sales in August rose 0.1%, beating expectations for a 0.2% decline, reflecting strength in spending, especially in e-commerce, which rose 1.4% YoY. This contributes to a positive view of economic growth, supported also by the increase in industrial production (0.8%) and the increase in housing starts (9.2%).

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