Fed Delivers First Cut of 2025 and Projects Two More Before Year End. Here’s What’s Moving Most

As expected, Fed officials trimmed interest rates by a quarter. The thunder? Two more cuts are projected by the end of the year and only one next year. The dollar sold off.

🔥 Fed Cuts Rates to 4.25%

• The US Federal Reserve went ahead and delivered its first cut to interest rates USINTR this year. As expected, the committee voted Wednesday to reduce borrowing costs by 25 basis points to 4.25%.
• Surprisingly, Jay Powell and his group of central bankers said they intend to cut interest rates two more times still this year. The Fed only meets twice by the end of 2025 so markets should see a cut in each of those meetings (unless something fundamentally changes).
• Previously, Fed officials had suggested they’re leaning toward only two cuts this year, so where did the third one come from? Markets are looking to the labor market as a possible reason – a sharp pullback in hiring is likely what pushed policymakers to opt for a third cut.
• And then one cut was projected for 2026. No news here as the Fed had previously penciled in a single trim for next year.

📢 What Just Happened?

• On the other side, inflation has been on the rise. Price pressures have been rising for four months straight with the August print showing a 2.9% annual growth rate. That’s nearly a full percentage point above the Fed’s 2% target.
• What’s the tradeoff here? The Fed has a dual mandate of maximum employment and price stability. But you can’t have a perfect balance all the time. And by the looks of it, central bankers are choosing to support job creation at the risk of triggering higher inflation.
• What can lower rates do now? Ideally boost employment as businesses go on hiring sprees because money is more affordable and they can seek expansion and investment.

👀 Look Across the Market Boards

• The US dollar sold off, deepening its ongoing slide against its rivals on the forex board. The EURUSD pushed higher toward a four-year peak near $1.19. The GBPUSD jumped to $1.37, a level last seen in early July. And the USDJPY nosedived 0.5% to ¥145.70.
• Risk assets mostly pulled back as traders turned defensive and likely played out the old-age market narrative “Buy the rumor, sell the news.” The Nasdaq Composite index IXIC shed about 0.7%, on track to log a second straight day in the red. The S&P 500 and the Dow Jones were trading just under the flatline.
• Bitcoin BTCUSD prices drifted lower by 1.2% to gravitate toward $115,000. Gold XAUUSD pared back its session losses, adding about 0.2% to float near a record high price of $3,700 per ounce.