US markets jumped on Wednesday as the Federal Reserve cut interest rates by 50 basis points, the first reduction in more than four years. The Fed's decision was prompted by rising confidence that inflation is approaching its 2% target.
"The Fed ended the pause with a bang. It’s a strong signal that they cut by 50 bps and expect another 50 basis points of cuts this year," said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
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Jacobsen added, "The Fed is projecting that by front loading the cuts they can stick the landing with the unemployment rate at 4.4% and inflation dropping to target quickly."
Market expectations for the rate cut varied in the days leading up to the announcement, with CME's FedWatch Tool indicating a 65% likelihood of a 25 basis point decrease last week, which had altered to a 57% possibility of a greater 50 basis point cut by Wednesday.
US stocks were trading in green after the Fed's action. The Russell 2000 was up more than 1% as small-cap companies, which are thought to be more susceptible to fluctuations in interest rates, also saw a surge.
The three primary US indices have all reached record highs this year, bolstered by indications of a slowing labor market, declining inflation, and potential interest rate cuts.
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(With Inputs From Reuters)