As was widely expected, the U.S. Federal Reserve has lowered interest rates by 25-basis points and signaled that further monetary policy easing is likely in coming months.
The rate cut was announced at the conclusion of the U.S. central bank’s latest policy meeting. Futures traders were betting nearly 100% that the U.S. central bank would lower its benchmark fed funds rate by a quarter of a percentage point after delivering a larger 50-basis point cut this September.
The fed funds rate, which determines the interest that banks charge each other for overnight lending, is now in a range of 4.50% to 4.75%. The Federal Reserve is widely expected to lower interest rates further as the U.S. inflation rate has declined to 2.4% from a peak of more than 9% in 2022.
Declining Inflation in America
Inflation in the U.S. is now close to the central bank’s 2% annualized target, giving it leeway to reduce interest rates that it had ratcheted up in recent years. Currently, markets are pricing in another 25-basis point interest rate cut in December of this year followed by multiple rate cuts in 2025.
Futures traders expect the benchmark fed funds rate to be in a target range of 3.75% to 4% by the end of 2025. As he often does, Federal Reserve Chair Jerome Powell emphasized that any future interest rate decisions from the central bank will be data dependent.
Is the SPDR S&P 500 ETF Trust a Buy?
The SPDR S&P 500 ETF Trust, which tracks the benchmark S&P 500 index, has a consensus Moderate Buy rating among 504 Wall Street analysts. That rating is based on 402 Buy, 94 Hold, and eight Sell recommendations issued in the last three months. The average SPY price target of $632.28 implies 6.98% upside from current levels.
