Powell delivers 25-bps cut but keeps markets guessing on rate path

Federal Reserve Chair Jerome Powell cut rates by 25 bps but left investors uncertain on future easing, citing inflation risks as markets priced in deeper reductions

Federal Reserve Chair Jerome Powell delivered a 25-basis-point cut in the benchmark lending rate, as expected, but left investors uncertain about the trajectory of monetary easing this year. He described the move as an act of “risk management,” emphasising that the Fed remains cautious given persistent inflation risks.

 

Policymakers signalled two additional cuts in 2025, but just one in 2026, while traders are pricing in the possibility of two to three more reductions next year. The divergence underscores the uncertainty surrounding the policy outlook, particularly as the US job market shows signs of strain.

 

Reflecting investor jitters, the 10-year US Treasury yield rose six basis points to 4.09 per cent following the Fed’s decision.

 

Here’s what experts said on the Fed move:

 

Aditya Bhave, Senior US Economist, BofA Securities:

“Everyone was willing to go along with a 25-basis-point cut, but the hawkish voices are going to get louder the lower policy rates go because the inflation picture isn’t going to clear up.”

 

Armina Rosenberg, Co-founder, Minotaur Capital:

“The Fed finally pulled the trigger, but the market’s reaction was anything but straightforward. The cut itself wasn’t a huge surprise, though the combination of a dovish move with still-cautious guidance left investors in two minds.”

 

Larry Hatheway, Global Investment Strategist, Franklin Templeton Institute:

“The Fed news met expectations. But the challenge for investors is a Fed that is not yet willing to endorse their discounted future path of much lower interest rates.”

 

Tracy Chen, Portfolio Manager, Brandywine Global Investment Management:

“The deep cuts that the market is expecting are not a done deal. This 25-basis-point cut is an insurance cut, a risk-management cut.”

 

Bret Barker, Co-head of Global Rates, TCW Group:

“It’s not hawkish, but it is more hawkish than markets were expecting. The Fed is not really validating the market’s pricing. They didn’t hint at a series of cuts going forward.”