The Federal Reserve lowered its benchmark interest rate by a quarter of a percentage point on Wednesday, marking its third consecutive cut this year and revealing significant internal divisions over the future path of its monetary policy. The decision, approved in a 9-3 vote, places the federal funds rate in a 3.5% to 3.75% range.
The dissent within the Federal Open Market Committee (FOMC) was notable, with Governor Stephen Miran advocating for a larger half-point cut, while regional Presidents Jeffrey Schmid and Austan Goolsbee preferred no change. This split reflects a deepening debate between officials focused on inflation risks and those prioritising labour market support.
Fed Chair Jerome Powell characterised the current policy stance as accommodative but cautious, stating the committee is "well positioned to wait and see how the economy evolves." The central bank's updated "dot plot" projections indicate a slower pace of easing ahead, pointing to just one additional rate cut in 2026 and another in 2027. This forward guidance aligns with what markets have termed a "hawkish cut."
Along with the rate decision, the Fed announced it will resume buying Treasury securities to stabilise funding markets, beginning with $40 billion in Treasury bill purchases starting Friday.
Market Sentiment
Global markets reacted positively to the Fed's decision, interpreting the rate cut as supportive for risk assets despite the signalled slowdown in future easing. The prospect of sustained, though measured, accommodative policy has boosted investor sentiment, with U.S. stocks rising in tandem with the global rally. The renewed bond-buying programme (quantitative easing) is seen as an additional layer of liquidity support, further buoying equities and other growth-sensitive assets. However, the clear divisions within the Fed and the reduced pace of projected cuts introduce a note of caution. Investors will now closely monitor economic data to gauge whether the Fed's gradual approach can sustain the rally or if growing uncertainty around future policy will eventually temper optimism.
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