The Globe and Mail reports in its Friday edition that the end of the Federal Reserve's interest-rate-cutting cycle is suddenly in sight, and a U-turn with rate hikes next year can no longer be ruled out. A Reuters dispatch to The Globe says that the Fed lowered the fed funds rate by 25 basis points on Wednesday to a target range of 4.25 per cent to 4.5 per cent, as expected. But if ever there was a "hawkish cut," this was it. The market reaction was swift and powerful: The dollar soared to a two-year high, stocks slumped and Treasury yields surged. Markets can overshoot on days like these, but there was plenty here to back up the moves, including chair Jerome Powell's news conference. First, the decision to cut was not unanimous, as Cleveland Fed president Beth Hammack dissented, and Mr. Powell called the 25-basis-point cut a "closer call" than recent decisions. He also said that monetary policy is now "significantly less restrictive" and "significantly closer to neutral." While the Fed's new projections are still pointing to 50 basis points of easing next year and 100 basis points by the end of 2026, the rates markets are having none of it. They are now pricing in only 35 basis points of cuts next year. No more.
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