Reaction Roundup: SA analysts, experts weigh in on Fed

Wall Street's focus on Wednesday was on the Federal Reserve's penultimate interest rate decision of the year. The central bank cut rates as widely expected, but the spotlight was grabbed by Fed Chair Jerome Powell, who surprised markets by throwing a December rate cut into flux.

The Federal Open Market Committee (FOMC) cut its key policy rate by 25 basis points to 3.75%-4.00%, while also signaling that it would end its quantitative tightening.

In the post-decision press conference, Powell said, "A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it." His comment immediately spooked investors, with equities turning sharply lower and yields jumping as bonds were snapped up.    

Wall Street eventually ended mixed after Powell's remarks. Here are some exchange-traded funds that track the benchmark S&P 500 index (SP500): (NYSEARCA:SPY), (NYSEARCA:VOO), (NYSEARCA:IVV), (NYSEARCA:RSP), (NYSEARCA:SSO), (NYSEARCA:UPRO), (NYSEARCA:SH), (NYSEARCA:SDS), and (NYSEARCA:SPXU).

See below for various reactions to the Fed:

Leo Nelissen, part of investing group iREIT+HOYA Capital:

"Today was a great example of uncertainty. Initially, the market sold off, as the Fed hadn’t made a formal commitment to more cuts. However, once the market realized they weren’t going to commit to that anyway, buyers returned.

To me, the biggest takeaway is that Trump loyalists like Miran were in favor of even bigger cuts, which is likely a preview of what’s to come once Powell leaves the stage next year."

Sarah House, senior economist at Wells Fargo:

"Notably, today's rate decision was not unanimous ... Dissents in both the hawkish and dovish direction speak to the difficult position the FOMC finds itself in at this juncture. Not only has visibility on the economy become more limited with the shutdown, but elevated inflation and flagging job growth have created some tension between the Committee's price and employment objectives.

Together, the subtle statement changes and two-sided dissents suggest the bar for another cut at the December meeting is getting higher. That message was made even more clear in the post-meeting press conference."

Joseph Brusuelas, principal and chief economist at RSM US LLP:

"Based on our judgement price stability precedes sustainable employment and risks are skewed towards rising and persistent inflation as the Fed cuts rates into rising prices and a set of financial conditions that looks more frothy by the day.

That is what underscored the twin dissents on the committee today ... Given the direction of inflation and risks around financial markets we anticipate more dissents not less going forward which in our estimation will capture diverging views on the committee around risks to price stability and maximum sustainable employment."

Mohamed El-Erian, chief economic advisor at Allianz and former CEO of PIMCO:

"The current economic complexity, lack of official data, weak leadership, diverging risk appetites and biases, lame duck syndrome—or perhaps none or some combination of all these factors—have contributed to the notable lack of unity among Fed officials, most clearly reflected in the rare two-sided dissents at today’s policy meeting. The minutes will be particularly interesting."

Justin Wolfers, professor at the University of Michigan's economics department:

"Powell's press conference is more consequential than usual:

1. December rate cut may not happen
2. The FOMC is divided ("strongly differing views")
3. Powell very worried—about both inflation and unemployment." 

Nick Timiraos, the Wall Street Journal's Fed watcher:

"Powell's press conference suggests the FOMC is broadly not on board with how heavily priced a December rate cut had become.

This goes beyond the typical disclaimer that policy is not on a preset path and a clear effort to wrest back some optionality to avoid getting dragged into doing any particular thing."

Chris Lau, investing group leader of DIY Value Investing:

"The Fed lowered interest rates as expected, while adding two critically meaningful changes to its policy. When mortgage-backed securities mature in December, it will reinvest the funds into treasury bills. All of the treasury bill yields rose except for the one-month treasury (US1M).

Second, the Fed characterized tariff-induced temporary inflation, the employment situation, and elevated inflation as a fog. Metaphorically, the Fed should drive more slowly. It meaningfully decreased the odds of another 25 bps cut in December. The major indices fell but then snapped back. The Russell 2000 (IWM), where interest rates matter more for small businesses, is at higher than normal odds of pulling back from here."