By Michael S. Derby

NEW YORK (Reuters) – A New York Federal Reserve official stated that financial markets are equipped to view a larger-than-expected interest rate cut as a neutral adjustment.

Despite not fully pricing in the recent half-point rate cut, market intelligence suggested investors understood it as a recalibration of Federal Open Market Committee (FOMC) policy. This would help sustain economic strength and job growth while facilitating ongoing inflation improvements, as noted by Roberto Perli.

Last week, in response to declining inflation and increasing job market risks, the Fed reduced its target rate range by half a percentage point to 4.75%-5.5%, with plans for further cuts by year-end.

Concerns existed prior to the meeting that a significant cut signaled the Fed’s anxiety about economic prospects; instead, it aimed to ease unnecessary policy restrictions.

Perli highlighted that market participants recognized there is no automatic connection between interest-rate adjustments and balance-sheet strategies.

Additionally, the Fed is moving forward with balance sheet reduction plans.