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Fed Trims Rates by 25 Basis Points — Markets Shrug

The U.S. Federal Reserve on Wednesday trimmed its benchmark federal funds rate by 25 basis points, bringing it down to a target range of 4.00%–4.25%, its lowest level since early 2022. The move, while significant in policy terms, was largely priced in by markets well in advance, dulling any immediate market excitement.

The decision came with near-unanimous support among the Federal Open Market Committee (FOMC) members. The only dissent came from Stephen Miran, a recent Trump appointee to the Fed Board, who pushed for a 50-basis-point cut. Ahead of the meeting, speculation had circulated that other Trump-era appointees, such as Michelle Bowman and Christopher Waller, might also advocate for a deeper cut, but both ultimately sided with the majority.

Fed Signals Slower Easing Path Ahead

More striking than the cut itself was the Fed’s updated “dot plot” of interest rate projections, which showed a more restrained outlook for future easing. While traders had been expecting the possibility of three or more cuts by the end of 2026, the Fed’s median projection suggested just one additional cut by 2026, signaling a more hawkish long-term stance than markets had hoped.

Chair Jerome Powell emphasized that this move was primarily a “risk management” cut, rather than an urgent attempt to stimulate growth. Powell stressed that while inflation has eased from its peak of over 9% in mid-2022 to around 2.5% today, the Fed remains cautious about reigniting price pressures, especially with the unemployment rate still hovering at a historically low 4.2%.

This guarded tone stood in contrast to the CME FedWatch Tool, which showed futures markets had been pricing in at least 75 basis points of total cuts over the next year. That divergence underscores how uncertain the economic outlook remains, particularly as global growth slows and fiscal policy remains in flux.

Wall Street Reacts Tepidly

Equity markets offered only a muted response to the announcement. The S&P 500 slipped 0.1%, while the Nasdaq Composite fell 0.3%, weighed down by tech stocks that typically benefit from lower rates. The Dow Jones Industrial Average bucked the trend, adding 0.6%, helped by gains in industrial and financial shares.

Bond markets saw a modest rally, with the 10-year Treasury yield dipping to 4.18% from 4.25%, reflecting a cautious bid for safety rather than a burst of optimism.

Investors are also weighing calls from former President Donald Trump, who has urged the Fed to pursue a full percentage point (100 basis points) of cuts, arguing that the U.S. economy risks sliding into recession if borrowing costs stay high for too long. So far, however, the Fed appears intent on charting its own gradual course, prioritizing stability over dramatic moves.

Broader Global and Corporate Backdrop

The Fed’s move comes against a complex global backdrop. Just hours before the decision, reports surfaced that China had banned the use of certain Nvidia AI chips in government-related systems, rattling semiconductor stocks and contributing to the Nasdaq’s decline. At the same time, Meta unveiled its first consumer-ready smart glasses, signaling Big Tech’s continued push into new hardware categories even amid tightening capital markets.

Meanwhile, market watchers continue to highlight the strategies of fund managers who have managed outsized returns despite market turbulence. One notable example is a portfolio manager who reportedly delivered a 2,000% gain on a single stock over several years by adhering to a strict long-term compounding strategy — a reminder that patient investing often beats trying to time the Fed.

The Road Ahead

While Wednesday’s cut marked a symbolic shift from the Fed’s previous tightening cycle, its modest size and cautious tone suggest that policy makers are trying to balance slowing growth against lingering inflation risks. Markets, for now, seem to be waiting for stronger signals before committing to a clear direction.

In short, Wall Street isn’t celebrating yet — and the Fed appears comfortable with that.