Citigroup Securities Research Report Highlights Fed's 50bp Rate Cut and Outlook

Citigroup Securities' research report indicates that the Federal Reserve's September 2024 interest rate decision included a 50 basis point (bp) cut, exceeding some market expectations. The statement accompanying the rate decision exhibited substantial changes from the previous meeting, suggesting the Fed's confidence in cooling inflation and its support for the job market. The latest dot plot reveals a target interest rate median of 4.4% for this year, lower than the 5.1% median from the June 2024 meeting, with a corresponding reduction in the target rate for next year.

Chair Powell emphasized that there is no pre-determined path for rate cuts, with decisions to be made on a meeting-by-meeting basis. He further reiterated policy flexibility, while expressing optimism regarding the economic outlook and the labor market. The Fed continues to paint a "soft landing" scenario.

We believe the Fed's 50bp rate cut is a preemptive measure aimed at maintaining current economic growth and employment levels, while preserving policy flexibility. We expect two additional 25bp rate cuts before the end of the year.

Following the overnight realization of the rate cut expectations, the market is likely to return to "soft landing" trading in the short term. Yields on US Treasuries may see limited downside, while US equities could continue to experience high volatility. Sectors such as biotechnology and real estate tend to perform well during "soft landing" and rate cut scenarios. (Gold Ten)