But a few weeks ago it delivered a very purposeful surprise, for investors this means that more surprises may yet come. It diminishes, or at the very least, dilutes inter-meeting communications by top Fed officials who often speak to set the tone.
The Fed will always hint as to its general movements. But the rigorous practice of forward guidance will likely be parked, at least for now – and with it, the Fed’s ability to 'talk' interest rates up or down, without actually having to change them.
Third, the move increases the level of economic uncertainty. Chair Jerome Powell might have declared a victory on inflation (“a sustainable path towards 2 per cent”), and at the same time praised growth in the US, but an unexpected double cut sends a different signal – that of potential distress.
'Is the Fed seeing something we are not?', 'Is a recession imminent?' are some of the questions circulated in investment committees.
So investors may enjoy the perks of an unexpected risk asset rally, but they should also be mindful that, exactly because of the double cut, downside risks have now risen.
George Lagarias is chief economist at Forvis Mazars
