The Fed cut rates by a quarter point today, as expected.

And Jerome Powell didn’t offer much new information about the policy outlook.

If we look back at their September projections, they saw another quarter point lower from here by year end, and another 100 basis points lower for rates next year.

At that time, it was clear that they wanted to get rates down aggressively to what they consider “neutral,” where policy is neither restrictive nor stimulative to economic activity (most importantly, no longer restrictive).

And the commentary from Jerome Powell in that September post-meeting press conference, and other Fed officials over subsequent days, sounded like they knew they were behind the curve, but they didn’t want to give that signal to markets.

The “cracks” in the labor market clearly had the Fed worried that they had indeed waited too long (held rates too high for too long, damaging the economy).

But if we fast forward to today, there have been three significant changes that have entered the Fed’s calculus.

Change #1:  A week after that September meeting, the BEA (Bureau of Economic Analysis) published revisions to economic output data from the first quarter of 2019 to the first quarter of 2024.

It was all revised UP.

The report also revised personal incomes up, consumer spending up and with a higher personal savings rate — and estimated higher productivity.

From this report, the Fed Chair clearly found relief on the economic picture.  In a Q&A event, he specifically addressed the report, and said that some “downside risks” to the economy they were concerned about had been “removed.”

Change #2:  The Fed has now moved rates down 75 basis points since September.  But bond yields, interest rates determined by markets, have moved UP by about the same amount.

The bond market (arguably) neutralized the Fed’s attempt to ease financial conditions.  Mortgage rates have reversed, from 6.1% back to 6.8% (levels of last July).

Remember, it was the sharp move higher in bond yields a year ago (last October) that led to a reaction from the Fed.  Jerome Powell signaled the end of the tightening cycle, citing the tightening of financial conditions that had taken place in bond yields.

With that, Jerome Powell was asked today about this recent big, adverse move in bond yields.

He seemed unworried.

Why?  Likely because of what is detailed in “Change #1” (above), and “Change #3.”

On that note, Change #3:  The election.  The Trump presidency brings with it a pro-growth agenda.  Remember, we looked at my chart on Monday (here) that showed the 10-year yield rising alongside the rise in the probability of a Trump win.

If we look back at 2016, we saw a similar Trump influence on bond yields …