This is a huge story for Americans and the rest of the world including Aussies. It’s all about the world’s most important central banker Jerome Powell, who gave the US a 0.5% cut in interest rates when most experts tipped a 0.25% cut. This could go down as one of the greatest cuts of all!

Stock players weren’t sure how to play this bigger-than-expected cut. Personally, the ‘wise’ action will make me invest in stocks today. As I write, the SPI futures is flat and that says our market will neither go up or down at the open. A part of that is because this 0.5% cut would have shocked a lot of big Wall Street investors who drive the Dow Jones index, along with the S&P 500 and Nasdaq Composite.

Ultimately, if this cut is seen as more a positive rather than a rescue operation for a US economy in trouble, then we could be in for an early start for a market rally that I’ve been expecting to start after the November 5 political shoot-off between Donald Trump and Kamala Harris.

As I write, Wall Street is still trading. If it closes down, it will be because this 0.5% rate cut will be seen as a sign that the thinking is that the Fed has kept rates too high for too long. However, if stocks finish up, then the thinking would be based on the ‘guess’ that the Fed is ahead of the curve and is cutting by a bigger-than-expected amount to ensure that the expected economic slowdown doesn’t become a hard landing culminating in a recession.

To explain what’s probably happening, I like this from Philip Straehl, chief investment officer of the Americas at Morningstar Wealth: “Recent economic data suggests the economy is still relatively strong compared to other easing periods, with unemployment at 4.2%, higher year over year but at a level that signals full employment, and GDP expanding at a 3% annual rate as of Q2 2024”.

He added that the Fed “has gotten comfortable that the downward trends in inflation are sustainable” and is now redirecting its focus to pulling off a ‘soft’ landing.

I see this cut as a pre-emptive sensible cut by a smart central banker. That puts Jerome Powell into a pretty small group of rivals.

Typical central bankers would have played safe with a 0.25% cut, but that could have helped send the US into recession. This BIG cut will help the US economy dodge a recession bullet. Hopefully, it will encourage our RBA to have the guts to cut rates, even if it’s only 0.25% to ensure that historical ineptitude of central bankers doesn’t prevail. That could leave us in a recession that we don’t have to have!

Later today, we get the latest unemployment number. If it rises by more than expected, that could bring rate cuts here earlier than expected, like before the end of this year.

It’s ‘keep your fingers crossed’ time. Let’s hope that our RBA boss Michele Bullock has learnt a thing or two from Jerome Powell!

At the close of Wall Street, all three US stock indexes were down by low percentage drops, which suggests that the markets aren’t sure how to play this cut. In the fullness of time, this will be seen as a smart piece of work from a central banker who’s better than many of his peers!