The Fed Cut Rates and Gave Markets a Green Light

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The Federal Reserve made its first cut of the year, lowering the federal funds rate by 25 basis points to a range from 4.00% to 4.25%. More revealing than the move itself, policymakers now project two additional cuts by year-end, three in total compared with roughly two a quarter ago. The tone is clearly more supportive.

A Board Tilting Dovish

Signals from the vote point to a softer stance ahead. One member projected an end-2025 policy rate around 2.75% to 3.00%, which implies several more cuts. With further changes expected on the Board over the next year and a half, the overall posture may continue to lean more accommodative.

Source: Federal Reserve
Source: Federal Reserve

Powell Prioritizes Jobs

Heading into the meeting, the choice was whether to lean harder against sticky inflation, helped recently by tariffs, or to cushion a cooling labor market. Chair Powell chose to protect employment and guide policy toward a neutral rate near 3%. His remarks emphasized jobs and growth more than inflation, which makes the immediate focus clear. He also recognized the risk that easing too quickly could reignite price pressures. Tariff effects were described as temporary and not yet decisive in the data, while job creation shows early signs of slowing demand.

A Forecast Mix That Raises Eyebrows

Despite acknowledging downside risks, the Fed raised its projections for 2025 growth and inflation and lowered the unemployment path, yet it still pointed to more cuts. The combination does not fully line up and suggests a stronger bias toward supporting activity.

Source: Federal Reserve

Why Markets Rallied

Cutting rates while growth is still holding up often leads to a bull steepener, in which short-term yields fall faster than long-term ones. That backdrop typically helps small caps, high-growth names in technology, and cyclical sectors such as financials and industrials because financing conditions improve and nominal revenues can rise. If inflation expectations remain steady while policy eases, real yields tend to decline. That setting has historically supported gold and crypto, and silver can benefit as well given its dual role as a precious and industrial metal.

What to Watch Next

Three signposts matter most from here. First, track how quickly the labor market cools relative to wage growth. Second, watch whether tariff effects remain temporary or become sticky. Third, follow the shape of the yield curve and the path of real yields as markets price the journey toward a neutral policy rate.

The rate cut matters, but the signal matters more. Powell leaned toward employment and support, and markets read a dovish message and responded accordingly.

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