Anticipated Actions of the Federal Reserve in the Year Following Its First Rate Cut in 2025
Federal Reserve Lowers Interest Rates Amid Stock Market Slowdown
The Federal Reserve has announced a rate cut, lowering its target range for interest rates to 4% to 4.25%. This decision, made by the Federal Open Market Committee, was nearly unanimous, with only one governor, Stephen Miran, advocating for a larger 0.5% cut.
The rate cut comes amidst a stock market slowdown, with the S&P 500 index having declined by around 10% in the first half of 2025, down from a gain of 20% last year. The slowdown in consumer spending largely reflects this slowdown in stock market performance, according to Fed Chair Jerome Powell.
Powell also noted that the unemployment rate remains low but job gains have slowed, and downside risks to employment have risen. Inflation has risen recently and remains somewhat elevated, currently at 2.9%, above the Fed's target, and has been rising for the past four consecutive months.
The housing sector remains weak, which could be due to high interest rates impacting borrowing. This weakness in the housing sector could contribute to the overall stock market slowdown.
The decision had been priced in by the market, as CME futures markets predict a 0.25% further rate cut at the Fed's next meeting on October 29 with an 87.7% probability. However, there was little reaction on crypto markets, with Bitcoin retreating slightly to $117,500 after jumping toward $118,000 during early trading in Asia, and Ethereum performing better with a 3% daily gain, taking the asset above $4,600.
There is a growing divide at the Fed over the policy outlook, as reported by the Kobeissi letter. Nine Fed officials see two more cuts in 2025, while six officials see none. The youngest Federal Reserve governor, Stephen Miran, who was nominated by then-President Donald Trump, was the only official pushing for a larger 0.5% cut.
No new information about stock market performance, unemployment rate, or labor market data was provided in the announcement. It has not been at or below 2% since February 2021. The Federal Open Market Committee did not provide any new information about Fed Chair Jerome Powell or the policy outlook.
In addition to Bitcoin and Ethereum, Solana, Dogecoin, Cardano, Hyperliquid, and Avalanche are showing slightly larger moves in the crypto market. The full impact of the rate cut on the stock market and financial markets will become clearer in the coming days and weeks.
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