Stocks and Bonds Rally as Fed Delivers Third Straight Cut – US Market Wrap
Bonds surged, and equities soared after the Federal Reserve dropped interest rates for the third time in a row, and Chair Jerome Powell expressed confidence that the economy will rebound if the inflationary impact of tariffs proves temporary.
The S&P 500 finished 0.7% higher, falling just short of all-time highs. The Nasdaq 100 ended the day in the green, while the Russell 2000 index of small-cap stocks rose 1.3% to a record.
The quarter-point cut in the federal funds rate, together with the authorisation of new Treasury purchases to replenish bank reserves, helped traders to look beyond a minor lowering of expectations for additional policy easing. Powell described the decision as a “further normalisation of our policy stance,” which should strengthen the labour market without raising inflationary pressures in the economy.
The decision to decrease rates was approved by nine out of twelve voters. The cut and the Fed’s tone matched Wall Street forecasts for a “hawkish cut,” but officials maintained their forecast for a single cut in 2026.
The impact of Trump’s on-again, off-again tariff battle has been a critical factor in how the Fed approaches efforts to reduce inflation to its 2% target. Without the levies, inflation is likely to be “in the low 2s” right now, Powell said at the post-decision press conference. And their impact is expected to diminish in the second half of next year.
US bond yields were lower. The 10-year yield hit 4.14%, its highest since the first week of September, in the morning session. Swap traders are still expecting two additional cuts over the coming year.
