The Fed finally blinked
After holding rates steady for 9 months, Powell and team pulled the trigger on a 25 bps cut, bringing the Fed funds range down to 4.00–4.25%.
This isn’t just a technical move — it’s the first step away from “maximum restriction” since late 2024. The decision came with debate: one Fed governor even wanted a deeper -50 bps cut. That tells you the internal split is real.
Why now?
- Job growth has slowed, unemployment is edging higher.
- Inflation is sticky at ~2.9% — not runaway, but still above target.
- Financial conditions are tight, and corporate borrowing costs remain elevated.
Markets wasted no time:
- Stocks ripped higher, led by tech and AI names.
- Credit markets opened wide — companies rushed to issue bonds at cheaper rates.
- But long-term yields climbed, showing bond traders aren’t convinced about an aggressive easing cycle.
- Mortgage rates even ticked up, a reminder that the Fed doesn’t control every corner of the market.
Here’s the bigger picture:
This cut is not a “pivot.” It’s a calibration. The Fed is trying to signal flexibility without giving up the inflation fight. They know growth risks are rising, but they’re not ready to go all in on easing.
For investors, the takeaway is clear:
• Every CPI release and labor market report now matters more than ever.
• If inflation drifts lower, the Fed keeps cutting — slowly.
• If price pressures flare back up, this could be one-and-done.
It’s a narrow path. Move too slowly, and growth stalls. Move too quickly, and inflation expectations reignite.
Bottom line: this 25 bps cut sets the tone for a measured easing cycle into 2026, not a free ride. Markets are celebrating today, but the real test will be whether inflation finally bends without the economy breaking.
Volatility is back on the menu. Buckle up.