The Federal Reserve announced a 25 basis point cut in the federal funds rate, bringing the target range between 3.75% and 4%, in response to a moderately expanding economy, but with a slowdown in the labor market and still high inflation.
The Fed watches layoff announcements very carefully
In the statement, the Federal Open Market Committee (FOMC) acknowledged that job gains have weakened over the year and that the unemployment rate has increased slightly, although it remained at low levels through August. The most recent macroeconomic indications confirm this trend. Inflation, however, has risen compared to the beginning of the year, remaining slightly high.
“Uncertainty about inflation is why the Fed is cautious”
Powell said of a cooling job market.
Reduction in December not obvious
Fed Chairman Jerome Powell said another interest rate cut at the Federal Reserve meeting on December 9-10 was “not a given.”
“Powell highlighted data dependency in 12 separate speeches in 2025. So, when data breaks down during a prolonged government shutdown, and with partial, delayed, and potentially biased information available on major data releases, the Fed had no choice but to put monetary policy on autopilot, and follow the path indicated by the dot plot – unless new reliable data changes the situation.”
explains Alexandra Wilson-Elizondo, Global Co-CIO of Multi-Asset Solutions at Goldman Sachs Asset Management, adding that
“A single weaker inflation reading, anchored expectations and cooling labor demand anecdotally support a cautious easing bias.”
How will the Fed move?
As expected, the Federal Reserve cut interest rates by 25 basis points. However, explains Bret Kenwell, US investment analyst at eToro, what worries investors most is what the Fed will do from now on. The big question now is: Which side of the Fed’s dual mandate will the committee focus on – the weakening job market or persistent inflation?
The latest report on the consumer price index (CPI) came in lower than economists expected, but showed that inflation is not cooling. Persistent inflation may actually prevent the Fed from moving as quickly or aggressively as it would like to counter the weakening labor market — and the lack of new economic data makes the task even more difficult.
As of Wednesday, the Nasdaq 100 was up more than 20% year to date and more than 55% from its April lows, continuing a seven-month streak. If, as Chairman Jerome Powell has said, a rate cut in December is “far from a given,” that could push some investors to slow the markets’ recent run, Kenwell adds.
Focus on corporate results
Quarterly profits, the analyst points out, will play a crucial role in the coming days, but we could see profit taking after such a strong rally. However, as long as earnings growth remains solid and consumers maintain their strength, any corrections could represent an interesting buying opportunity. In fact, in recent months, short and superficial declines have left many investors with liquidity waiting for a more attractive opportunity to enter the market.
