New York Fed: Market is ready to correctly interpret last week's rate cut

New York Fed officials responsible for implementing monetary policy said on Tuesday that the financial markets are ready to interpret unexpected rate cuts as having meanings other than just signals of economic downturn.

Roberto Perli, manager of the Federal Reserve System's Open Market Account, said in his speech that although the futures market has not fully digested the Fed's 50 basis point rate cut implemented last week, market information collected by the New York Fed indicates that investors "may interpret the 50 basis point rate cut as the Fed's intention - that is, the Federal Open Market Committee (FOMC) policy adjustment towards a more neutral stance, which will help maintain a strong economy and labor market while continuing to push inflation further down."

Facing declining inflation pressures and rising risks in the job market last week, the Fed lowered its overnight target rate range by 50 basis points to between 4.75% and 5.5%, and included an additional 50 basis point rate cut by the end of this year in its plan.

Before the Fed meeting, some were concerned that a significant rate cut by the Fed might imply concerns about the economic outlook rather than the eventual proof, that is, withdrawing unnecessary policy restrictions from the economy.

The Fed also stated last week that it will continue to advance its balance sheet reduction plan. Perli stated in his speech, "Market intelligence has clearly shown that market participants have been aware for months that there is no mechanical link between interest rate and balance sheet decisions."

IMF Managing Director Georgieva also stated that with monetary policy cooling inflation without causing an economic recession, the U.S. economy is expected to achieve a soft landing. She also praised that while other countries are experiencing economic slowdowns, the world's largest economy, the United States, has helped support global economic growth.

Georgieva stated on Tuesday that it was "right" for the Fed to keep rates high before the 50 basis point rate cut earlier this month. When asked about U.S. inflation, she said, "Our situation is very good. In this very difficult time, the U.S. has helped sustain the world economy."

She also believes that Asian emerging markets have helped support economic expansion. She reiterated that the IMF expects global economic growth to reach 3.2% this year, and the IMF will update its forecasts in the upcoming annual meeting next month in the World Economic Outlook