Global markets react to fed rate cut

The US Federal Reserve has lowered its key interest rate for the first time in a year, cutting it by 0.25 percentage points to a range of 4.00–4.25%. The decision was made against the backdrop of a cooling labor market and signs of slowing economic growth, while inflation remains above target levels. For markets and investors, this move signaled the start of a monetary easing cycle but also raised questions about how determined the Fed is to continue.

Fed decision and forecasts

At the meeting of the Federal Open Market Committee, it was noted that job growth is becoming less stable, and the economy is showing signs of slowing down. This is especially evident in sectors that previously saw active hiring: both industry and services reported weaker job gains compared with earlier in the year. Such dynamics provided the Fed with arguments in favor of easing credit conditions to prevent a sharper slowdown in business activity.

At the same time, the regulator emphasized that inflation remains above the 2% target, which means that rates cannot be cut too quickly. Updated forecasts now suggest that US GDP in 2025 could grow by around 1.6%, higher than previous estimates. This shows the Fed’s attempt to maintain balance: on the one hand, supporting economic growth, while on the other, avoiding excessive price increases. This compromise defined the cautious nature of the decision.

Global market reaction

Markets greeted the rate cut with strong but mixed reactions. In the first hours of trading, shares of interest rate-sensitive companies, such as those in technology and construction, rose sharply. This was due to lower borrowing costs directly supporting investment in innovation and infrastructure. However, part of these gains quickly faded after Fed Chair Jerome Powell stressed that future steps would depend entirely on incoming economic data, and that investors should not expect a rapid easing cycle.

The bond market responded differently: yields on long-term US Treasuries climbed, reflecting investor caution and doubts about the depth of easing. European stock exchanges saw growth, particularly in the tech sector, while Asian indexes declined after the previous surge in the US. Thus, global markets reflected the duality of the situation: enthusiasm over the rate cut was tempered by caution about the Fed’s next moves.

What investors should keep in mind

For investors, the Fed’s current decision is not only about immediate market reactions but also a reason to reassess long-term strategies. The key question is whether this marks the beginning of a sustained easing cycle or a one-off step in uncertain conditions. The answer depends on macroeconomic data, especially inflation and labor market figures, which will serve as the main guide for the Fed.

Key points to consider:

• the rate has been cut for the first time in a year, opening an easing cycle;
• Fed forecasts suggest two more possible cuts by the end of 2025;
• bond yields are rising, reflecting investor caution;
• there are disagreements within the Fed about the pace of easing;
• inflation remains above target, limiting the regulator’s room for maneuver.

In this environment, some investors see opportunities for short-term trades on the stock market, while others prefer a more conservative stance. Long-term players focus on corporate earnings reports and borrowing costs, which may shift depending on how soft the Fed’s policy becomes in the coming months.

Consequences and risks for the economy

The rate cut could revive domestic demand and stimulate investment. For businesses, this means access to cheaper loans, which is especially important for capital-intensive industries. For consumers, lower rates could translate into more affordable mortgages and consumer loans, potentially boosting activity in real estate and retail.

Yet this scenario has weaknesses. If inflation proves more persistent than expected, the Fed’s soft policy could trigger another wave of price increases. In that case, the regulator would be forced to tighten conditions again, an unpleasant surprise for businesses and investors. Additional risks come from global factors such as rising energy prices, geopolitical instability, and potential new trade conflicts. All of these could offset the positive effects of the rate cut and complicate economic forecasting.