What the Feds Big Rate Cut Reveals About the Economy

ImageMission accomplished? Global markets are rallying as investors cheer the Fed’s prodigious interest-rate cut — half a percentage point, instead of a more cautious quarter-percentage point.The move landed like a thunderbolt in American politics.The big question: Did the Fed successfully thread the economic needle?Investors seem to think the central bank got it right.

S&P 500 futures jumped on Thursday after the benchmark fell in volatile trading following the Fed’s decision.The prices of bonds and cryptocurrencies are rising, too.

And this just in: The Bank of England voted to keep rates unchanged.Are we set for a soft landing? Jay Powell, the Fed chair, didn’t utter the phrase — shorthand for cooling the economy via interest-rate policy without causing a recession — during his post-decision news conference on Wednesday.But Jason Furman of Harvard, who has criticized the Fed’s handling of inflation, said that the central bank had just about pulled it off.In the closest thing you’ll see to a central banker taking a victory lap, Powell said, “Our patient approach over the past year has paid dividends,” with the central bank now seeing the inflation problem as a fading risk.Other takeaways:The central bank has historically resorted to half-point cuts as emergency efforts to avert recessions.

But Fed officials don’t see an imminent slowdown: “Our economy is strong overall,” Powell said.Instead, the jumbo cut was meant to ease household finances and bolster the labor market, which has become the Fed’s new principal worry.Fed officials say they expect the prime lending rate to fall to roughly 3.4 percent by the end of next year, from about 4.9 percent today.But Powell played down the idea of another supersize cut this year.

Futures markets on Thursday see two cuts of a quarter point each at the remaining two Fed meetings.The presidential contenders weighed in.Donald Trump, who warned the Fed not to cut rates before the election, sai...