| Good morning. The Fed's half-point interest rate cut ripples through markets and the backdrop for other central banks, as bets for more ramp up. Here's what's moving markets. — Sam Unsted Want to receive this newsletter in Spanish? Sign up to get the Five Things: Spanish Edition newsletter. The Federal Reserve has cut rates by 50 basis points, a big move designed to preserve the strength of the US economy amid mounting risks to the health of the labor market. Fed Chair Jerome Powell said taking the step now would help to limit the chance of a full-blown downturn, while being careful to avoid committing to this as the new pace for rate reductions. Michelle Bowman dissented, voting for a 25-basis-point cut, the first time a Fed governor has done that since 2005. The decision by the Fed and a determination not to fall behind the curve in the nascent easing cycle will reshape the policy horizon for its central bank counterparts across the world. While in other developed countries official insist that decisions by the Fed don't impact their own policy trajectory, some comfort could be taken in Powell declaring that the US economy remains in good shape. It will reduce pressure on exchange rates for emerging markets and sets the stage for decisions to come. It got a mixed reaction in markets, with initial gains for stocks fizzling and ultimately tepid moves in Treasuries, corporate bonds and commodities. Some are heating up today, however, with US stock futures bouncing amid gains across Europe and in Asia, while gold is heading back toward a record high and copper prices hit the strongest level in two months to lead a broad rally in base metals. A basket of Asian currencies notched up a 14-month high and the Japanese yen weakened with traders eyeing yield spreads. Traders ramped up their bets on cuts to come from the Fed too, with more than 70 basis points of reductions seen for the rest of this year. That's higher than the half-point of further easing implied by the Fed's dot plot. A Citigroup trader called the jumbo cut, and so did JPMorgan, though the latter is less sure about what comes next. Mohamed El-Erian, meanwhile, saw the cut as dovish, while others on Wall Street suggested it indicated that the Fed regrets not cutting at its previous meeting. The calendar for Federal Reserve speakers is empty for the day and the economic agenda is thin too, with initial jobless claims top of the bill. Darden Restaurants, the owner of the Olive Garden chain, is reporting, with logistics giant FedEx set to update after the close in New York. And there's a policy decision from the Bank of England today, ahead of the Bank of Japan on Friday and after Hong Kong cut rates for the first time since 2020. This is what's caught our eye over the past 24 hours. Good morning. The Fed did 50! I caught the news while sitting in the airport in Orange County, California, while waiting for my flight back home to New York. It was a very surreal moment, which you can see here. There are plenty of takes out there, and you've probably seen them all, so I'm going to offer up just two simple thoughts. One is short term and one is medium term. I'll start with the medium term one, which is kind of obvious, but big, which is that the major macro discourse going forward is going to be about whether the theoretical "neutral" rate of interest has gone up substantially since before the pandemic. Setting aside whether such concepts as the neutral rate of interest are fundamentally sound or not, there are good reasons to think that there's been some kind of structural shift. Government spending/deficits have gone into a higher gear. International supply chains are being reshaped. The geopolitical situation is not good. Labor markets are secularly tight. Even with the rise in the unemployment rate, this still appears to be an economy with a high degree of resource utilization. So when thinking about how low interest rates can go during the cutting cycle, it doesn't seem crazy to think that we're not going back to the "old days" any time soon. Obviously I don't have a strong view on this question, but this is probably the key thing that everyone will be trying to figure out now. And the Fed will be thinking a lot about this question from here on out. During the press conference, Powell himself said his sense is that neutral has likely gone up significantly since pre-pandemic. So that's the big thing to think about in the medium term. In the short term, you know, this meeting may prove to be a bit of an anti-climax. And what I mean by that is, not much is really settled here. There was so much ink spilled about 25 or 50 and there was so much attention to every data point, and which way the Fed would be nudged by CPI, PPI, initial jobless claims, NFP, ISM, and so on. And so one of the things you started hearing was that the Fed was not so much "data dependent" but rather "data-point dependent". I think it's very possible that we're still in that world of data-point dependency. In his press conference, Powell said, "I do not think that anyone should look at this and say, 'Oh, this is the new pace.'" Ok, so if the 50-basis-point cut doesn't reveal the new pace, then what will? Well duh, it'll be whatever data comes out between now and the next meeting. And then whatever data comes out between that meeting and the meeting following up. And it's worth noting that during the press conference Powell said that the Fed is not declaring "mission accomplished" when it comes to inflation, which means that future inflation data points will be watched. And if things get warm again, that will have a role in the pace and depth of the cuts. So looking forward, future Fed meetings probably won't be quite as dramatic as this one. But unless you have achieved some impressive state of zen, then it'll probably be a while before you can put the Fed out of your mind. And BTW — the next Fed decision is two days after the presidential election. That's gonna be an interesting week. Follow Bloomberg's Joe Weisenthal on X @TheStalwart | 
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