The Federal Reserve trimmed interest rates by 25 basis points this week, lowering the federal funds target range to 4.00%–4.25% and signaling it will proceed carefully from here. The move — described by Chair Jerome Powell as a “risk-management” step amid softer job creation — keeps financial conditions restrictive while opening the door to additional cuts if the labor market weakens further.
What the Fed did
The Federal Open Market Committee cut the target range for the federal funds rate by a quarter-point to 4.00%–4.25%, citing moderating growth, slower job gains and still-elevated inflation. The statement also confirmed that quantitative tightening continues.
The Board set the Interest on Reserve Balances (IORB) at 4.15% and the overnight reverse repo (ON RRP) rate at 4.00%. The Desk was instructed to maintain the funds rate in the new range and continue balance-sheet runoff under the existing monthly caps.
The vote was 11–1, with Governor Stephen I. Miran preferring a larger 50 bp cut.
Powell’s message: a “risk-management” cut
In his press conference, Chair Jerome Powell framed the move as a risk-management step, pointing to a softer labor market even as inflation progress has been uneven.
The roadmap from the projections
The latest Summary of Economic Projections implies a median policy path drifting toward the mid-3s over the next two years (median fed-funds: 3.6% in 2025, 3.4% in 2026, 3.1% in 2027–28).
How markets are reading it
Stocks initially chopped, then rallied to fresh or near-record levels as investors priced in the possibility of one to two additional cuts this year; at the same time, Treasury yields firmed, reflecting a “hawkish cut” interpretation.
In credit, primary issuance picked up as companies took advantage of slightly easier financial conditions.
Gold extended a multi-week climb on expectations of gradual policy easing, even as the dollar stayed resilient.
What it means for traditional finance
- Rates & duration: Front-end yields should drift lower as cuts accumulate, but longer maturities may stay sticky if inflation proves slow to converge, keeping term premia and valuation headwinds in play.
- Liquidity: With IORB/ON RRP settings unchanged in structure and runoff still active, liquidity support is measured rather than flood-like—constructive for credit discipline but not an immediate rocket-fuel for highly rate-sensitive segments.
- Risk appetite: Equities can benefit on dips, but leadership may favor quality balance sheets given lingering growth and inflation uncertainty.
Crypto: muted pop, watch the macro glidepath
Major tokens saw a modest post-decision lift, with some desks still hedging downside via options as real yields and the dollar proved sticky.
The cut is incrementally positive for digital assets if it ushers in lower real rates over coming months; still, positioning and liquidity remain swing factors in the near term.
What to watch next
- Next cuts? Futures imply high odds of another 25 bp move this fall; Powell emphasized a meeting-by-meeting approach.
- Inflation momentum: Core PCE’s path into year-end will guide the curve’s slope—and the risk appetite of equities and crypto alike.
- QT calibration: Any changes to runoff caps or reinvestment strategy would be a liquidity signal for both TradFi and tokens.
Bottom line
The Fed delivered a carefully calibrated cut: enough to hedge rising job-market risks, not enough to declare victory on inflation. For equities, that mix tends to favor quality growth and balance-sheet strength. For bonds, front-end duration benefits while long-end rates stay sensitive to inflation progress. For crypto, the immediate pop may be capped, but the path of gradual easing plus clearer bank-crypto rails keeps the medium-term setup constructive — provided inflation resumes its glide toward target.
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