Markets were prepared to watch last week's price level duly discounted by Reuters

Written by Michael S. Derby

NEW YORK (Reuters) – The central bank official in charge of monetary policy at the New York Federal Reserve said on Tuesday that financial markets were willing to interpret a larger-than-expected interest rate cut as something that was not a sign of trouble.

Although futures markets were not fully sold on the 50 percent rate cut brought by the Fed last week, market intelligence gathered by the New York Fed indicated that investors “may interpret the 50 basis point cut in what was – a realignment of the FOMC's policy (Federal Open Market Committee) is moving toward a neutral stance that will help maintain economic strength and the labor market while continuing to provide progress on deflation,” said Roberto Perli, head of the Fed's Open Market System. An account, in the text of the speech.

Last week, the Fed, faced with waning inflationary pressures and rising risks in the labor market, lowered its overnight rate target by half a point to between 4.75% and 5.5%, and penciled in 50 basis points of further tapering. at the end of the year.

Going into the Fed meeting, some were worried that the Fed's more-than-expected rate cuts might indicate that the central bank is worried about the idea, rather than what it actually was: a move to withdraw unnecessary policy restrictions on the economy.

The Fed also said last week that it is moving forward with plans to reduce its balance sheet.

Perli said in his speech that “market intelligence has been clearly indicating for many months that market participants understand very well that there is no mechanical connection between interest rate decisions and balances.”