Ahmed Kamel – Egypt Daily News
In a significant move reflecting growing concerns over the U.S. economy, the Federal Reserve cut its benchmark interest rate by 25 basis points on Wednesday, marking the first rate cut during Donald Trump’s current presidential term. The decision, driven by signs of a weakening labor market and persistent inflation, sparked a mixed reaction across financial markets.
Speaking at a press conference following the decision, Federal Reserve Chair Jerome Powell acknowledged the increasingly fragile state of the job market and the central bank’s ongoing struggle to tame inflation, which continues to run above its 2% target.
“There’s no risk-free path,” Powell said, describing the quarter-point rate cut as a risk management tool. “We’re navigating a highly uncertain environment, and every meeting is live.”
The Federal Open Market Committee (FOMC) voted to lower the federal funds rate to a range of 4.00% to 4.25%. The decision was not unanimous, with newly appointed Fed Governor Steven Miran dissenting, having favored a deeper, 50-basis-point cut.
The Fed’s updated “dot plot,” which charts individual policymakers’ rate projections, now suggests a further half-point cut by the end of 2025 and an additional quarter-point reduction in 2026. These projections mark a slightly more dovish stance than the June forecast.
Market Reaction: Volatility Returns
Equity markets responded with unease. The S&P 500 slipped 0.2% by mid-afternoon in New York, weighed down by losses in tech, consumer discretionary, and communication services stocks. The Nasdaq 100, initially down 1.1%, pared losses to end the session down just 0.3%.
Investors appeared unsettled by Powell’s remarks indicating that monetary policy decisions would remain data-dependent and be made on a meeting-by-meeting basis. Hopes for a more aggressive easing cycle were quickly tempered.
Bond markets reflected the uncertainty, with U.S. Treasury yields rising amid choppy trading. Meanwhile, the U.S. dollar staged a modest comeback after touching a new year-to-date low. The Bloomberg Dollar Spot Index recovered 0.2% after earlier dropping 0.4%, its lowest level since March 2022.
Labor Market and Inflation in Focus
The Fed’s accompanying statement softened its characterization of the labor market, noting that job gains had “slowed,” unemployment had “ticked up slightly,” and downside risks to employment had increased.
Despite these labor market concerns, inflation remains stubborn. The Fed’s median projection for core inflation remained at 3.1% through the end of 2025, unchanged from June. However, growth expectations were raised modestly to 1.6% for 2025 and 1.8% for 2026, up from 1.4% and 1.6%, respectively.
Powell emphasized that while inflation is trending downward, the path ahead remains uncertain. “We have made progress, but inflation is still too high, and we are not declaring victory,” he said.
Oil Prices Dip, Dollar Drops
Energy markets also reacted to the Fed’s move. After three consecutive days of gains, oil prices slipped as traders weighed the implications of rate cuts on economic growth and demand. West Texas Intermediate crude fell 0.7%, settling just above $64 per barrel.
Meanwhile, the weaker dollar lifted major global currencies, which all gained against the greenback in anticipation of further monetary easing.
Outlook: More Cuts Ahead?
The market is now betting on at least two more rate cuts before the end of 2025. Yet Powell was cautious about confirming such a path, repeatedly stressing the importance of incoming data and flexibility in policy decisions.
While the 25-basis-point cut marked a notable shift, it may prove to be just the beginning of a broader easing cycle, if economic indicators continue to weaken. Labor market data in the coming months will be pivotal in shaping future Fed actions.
For now, the message from the central bank is clear: while inflation remains a priority, mounting risks to the labor market have become impossible to ignore. The Fed is preparing to act but not rush in its balancing act between controlling prices and supporting growth.
