The Federal Reserve’s 25 foundation level (bp) price minimize, its first of 2025, set the stage for weeks of market debate.
Whereas the transfer was broadly anticipated, Chair Jerome Powell’s dovish tone at yesterday’s press convention and the Fed’s sharply divided dot-plot have left traders questioning what’s going to occur subsequent.
Powell Alerts a Danger Administration Pivot
Powell framed the speed minimize as a danger administration determination in his opening remarks, citing mounting cracks within the US labor market.
Revised payroll figures exhibiting 911,000 fewer jobs than beforehand reported, alongside rising long-term unemployment, level to a weaker basis than headline numbers counsel.
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“The risks to inflation are tilted to the upside, and employment risks are tilted to the downside,” Powell mentioned.
The Fed chair additionally famous that policymakers don’t really feel the necessity to transfer rapidly on charges, however should act preemptively to forestall a deeper downturn.
Powell downplayed the inflationary impression of Trump’s tariffs, arguing that the pass-through has been “slower and smaller” than anticipated.
Nonetheless, he acknowledged value pressures might persist into 2026. On the identical time, he described the labor market as now not “solid.”
He cited hiring slowing, immigration shifts lowering provide, and AI adoption probably weighing on entry-level jobs.
Backside line: Powell’s remarks have been much more dovish than his 2024 steering when the Fed slashed charges by 50 bps. This implies a deliberate pivot towards prioritizing employment over inflation.
Market Response With Fed Divisions on Full Show: Greenback Slides, Equities Eye Liquidity
The brand new dot-plot revealed a central financial institution struggling to search out consensus. 9 of 19 officers see two extra cuts this yr, whereas six anticipate no additional easing.
One member even tasks a hike, whereas Trump appointee Stephen Miran dissented in favor of a 50 bps minimize.
“This meeting was a mess…One member thinks the Fed hikes this year…another thinks we get five cuts. This rigging of the voting to create the illusion of a ‘consensus’ and then publishing a wide dot plot like this only further undermines their credibility,” mentioned macro funding researcher Jim Bianco.
Fed Dot Plot. Supply: Jim Bianco on XSponsored
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In the meantime, The Kobeissi Letter known as the transfer historic, highlighting the primary price minimize in over 30 years with Core PCE inflation above 2.9%.
“It’s clear the Fed is prioritizing the labor market over inflation,” Kobeissi wrote, noting markets now anticipate as many as 4 extra cuts by September 2026.
The quick market response was swift. The US greenback fell to its weakest stage since February 2022, whereas equities held close to document highs.
Futures markets priced in at the very least two further cuts by year-end, with Kalshi information exhibiting the percentages of three cuts spiking above 60%.
What Did the Markets Interpret from Powell’s Speech Yesterday?
Barchart highlighted that when the Fed cuts charges inside 2% of inventory market all-time highs, the S&P 500 has traditionally risen 100% of the time over the next 12 months, averaging a 14% acquire.
When the Fed cuts rates of interest inside 2% of inventory market all-time highs, the S&P 500 has gone on to complete larger over the subsequent 12 months 20 out of 20 instances (100% hit price) 🚨🚨🚨 pic.twitter.com/JtrQxybKEt
— Barchart (@Barchart) September 17, 2025
Constancy’s Jurrien Timmer in contrast the second to the late-1998 LTCM disaster, when the Greenspan Fed eased into robust markets, fueling a spectacular rebound.
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The truth that the Fed is about to chop charges whereas animal spirits are rampant brings to thoughts the post-LTCM easing cycle in late 1998. The Greenspan Fed minimize charges 3 times although the market was robust and there was no recession. The remaining is historical past, in fact. In reality,… pic.twitter.com/yka4HIQKMG
— Jurrien Timmer (@TimmerFidelity) September 17, 2025
Crypto markets are additionally watching liquidity flows carefully, with analyst Ash Crypto highlighting prospects for extra liquidity within the face of extra price cuts. This, he says, would translate into potential pumps for crypto costs.
“More cuts = More liquidity = pump,” the analyst wrote.
The Case for Warning
Nonetheless, not everyone seems to be satisfied the minimize heralds an prolonged bull cycle. Mark Minervini argued the Fed’s transfer was a “token” minimize. Given inflation’s persistence, he says it’s unlikely to set off an aggressive easing path.
“Rate cuts are typically bullish, particularly when they occur outside of a recession. But the Fed is cutting preemptively rather than reacting to an outright downturn. That distinction matters: it lowers the likelihood of an aggressive easing path, which could diminish the market impact,” he famous.
In the meantime, economists at The Dialog pressured the balancing act: reducing too rapidly might reignite inflation, whereas shifting too slowly dangers a sharper labor downturn.
Tariff-driven value pressures complicate the image, notably for lower-income households, who spend extra on imported necessities that are actually climbing in price.
Henrik Zeberg, a long-time cycle analyst, warned that markets could enter a euphoric blow-off part earlier than a extreme downturn.
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“Liquidity now will only build a higher peak from which the market can crash,” he wrote, likening right now’s rally to late-Twenties conduct.
What Comes Subsequent
The divergence between robust market technicals and weakening fundamentals leaves traders in a precarious place.
Traders consider Powell has signaled additional cuts are coming. Towards this backdrop, sentiment is bullish, at the very least for now, with equities at information and crypto climbing.
As of this writing, Bitcoin was buying and selling for $117,107, whereas Ethereum exchanged palms for $4,572. Each belongings confirmed power following the Fed’s determination.
However, dangers abound and proceed to erode investor confidence. These embrace:
- A labor market softening into recession,
- Tariff-driven inflation stickiness, and
- Political overtones round Powell’s “risk management” framing.
If the Fed cuts too aggressively, it dangers shedding its inflation-fighting credibility. On the identical time, rising unemployment might pressure extra drastic motion later if it strikes too cautiously.
Due to this fact, the subsequent few weeks for riskier belongings like Bitcoin could also be outlined by liquidity-driven optimism. Nonetheless, that is with the understanding that this rally rests on fragile floor.
It’s price noting that Powell himself acknowledged that the Fed is navigating “a challenging situation” the place each side of its mandate are flashing crimson. The historical past of such moments exhibits markets usually rally first and reckon later.
