Spotlight | November 2024

The US Goes Large

Latest news from the investment team

Yesterday, the US Federal Reserve (Fed) cut rates for the first time in over four years.

The benchmark interest rate was reduced by 0.5% to a range of 4.75% to 5.00%. One member of the committee, Michelle Bowman, dissented and voted for a smaller 0.25% cut—making her the first governor since 2005 to do so.

The Fed’s updated dot plot (their projected path of interest rates) now suggests:

  • Another 0.5% in rate cuts by the end of 2024

  • An additional 1% of cuts in 2025

This guidance reflects sharper expected cuts than projected in June, aligning more closely with market expectations.

Why now?

This move was widely expected and follows:

  • A significant fall in inflation from over 9% in June 2022 to 2.5% in July 2024

  • Recent rate cuts by other central banks, such as the Bank of England and the ECB

Although 0.25% is the typical starting point for a rate cutting cycle, the Fed opted for a larger 0.5% cut, acknowledging the historically aggressive rate-hiking cycle of 2022–23 and the evolving economic landscape.

Key reasons behind the decision:

  • Real interest rates have risen rapidly due to falling inflation, tightening financial conditions even without further hikes

  • Labour market softness is emerging:

    • Unemployment has increased from 3.4% to 4.2%

    • Immigration has boosted worker supply, loosening the tight post-lockdown job market

  • Borrowing costs remain high, and with inflation lower, businesses and consumers are less able to offset them

Fed Chair Jerome Powell described the cut as a “recalibration,” emphasising:

  • A proactive stance to avoid falling behind the curve

  • Continued confidence that “the economy is in a good place”

Markets were initially volatile due to uncertainty over the size of the cut, but the actual decision and Powell’s calm tone have since lifted stock prices.

Bottom Line

This rate cut is supportive for markets.

  • Lower borrowing costs encourage investment, hiring, and consumer spending

  • Earnings outlook remains strong

  • The upcoming US election on 5th November may cause some short-term volatility, but the long-term case for equities remains intact

Disclaimer
For more information, please contact your adviser.

The value of investments and the income from them can go down as well as up and investors may not recover the amount of their original investment. The sterling value of overseas investments, and the income from them, will fluctuate as a result of currency movements. Past performance is not a guide to performance. The information in this document is believed to be correct but cannot be guaranteed. No representation or warranty (express or otherwise) is given as to the accuracy or completeness of the information contained in this publication.

This publication does not constitute professional advice and does not constitute an offer to sell or a solicitation of an offer to purchase any security or any other investment or product. Furthermore, this publication does not constitute tax or legal advice. You must consult with an independent tax adviser and/or legal adviser for specific advice before entering into, refraining from entering into or exiting any investment or structure or planning. North Capital Management as the regulated firm, will not accept any liability for the consequences of acting or not acting upon the information contained in this publication. Opinions expressed are solely the opinions of North Capital Management. All expressions of opinion are subject to change without notice. This document may not be reproduced or distributed in any format without the prior written consent of North Capital Management. North Capital Management Ltd is authorised and regulated by the Financial Conduct Authority (FRN 713442). Reg. in Scotland (SC509360)

More in Spotlight