Loading ...It will also depend on how he explains his decision.
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Market expectationsAs of Tuesday, September 16, 2025, a 25-basis-point cut is widely anticipated by investors. The CME FedWatch tool shows a 96% probability of such a cut, and financial analysts have largely factored it into asset prices.
- Because it is an expected move, a simple 25-basis-point cut is less likely to trigger a massive, immediate rally in stock prices. Some analysts even suggest a short-term, “sell the news” pullback is possible as investors who bought in anticipation of the cut exit their positions.
- A larger, 50-basis-point cut would be a significant surprise and could cause a powerful, immediate rally. Conversely, no cut at all would likely disappoint the market and lead to a sell-off.
The significance of Powell’s commentaryThe key driver of market movement will be Powell’s remarks during his press conference, especially his tone regarding future rate cuts and economic conditions.A dovish 25-basis-point cut
This scenario involves a 25-basis-point cut accompanied by language signaling more rate cuts in the future.- How it happens: Powell would emphasize the need to address the weakening labor market, which is showing signs of softness. The updated “dot plot” of economic projections would likely show officials anticipating multiple cuts by year-end.
- Likely market reaction: This would be perceived positively by the market, potentially leading to moderate gains for equities, especially growth-oriented sectors like technology. A dovish outlook would reinforce confidence that the Fed is poised to support the economy.
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A hawkish 25-basis-point cut
This scenario features a 25-basis-point cut but is accompanied by cautious or non-committal commentary from Powell about further cuts.- How it happens: The Fed might note the weakening jobs market but stress that inflation is still a concern, especially with prices trending upward. Powell could emphasize that future decisions will remain “data-dependent.”
- Likely market reaction: This could be interpreted as a “hawkish cut,” which would disappoint investors who expect more aggressive easing. Stocks could react negatively or remain flat as the prospect of fewer future cuts spooks the market.
Broader market implications
Beyond the short-term stock market reaction, a 25-basis-point cut has other significant implications:
- Borrowing costs: The cut would likely be passed on to consumers and businesses in the form of lower interest payments on loans, including mortgages, credit cards, and auto loans. Some of this is already priced in, so the drop may be modest.
- Bond market: Government bond prices would likely rise, and yields would fall, as a rate cut makes existing bonds with higher fixed interest payments more attractive. For dividend stocks, lower bond yields would also make their payouts comparatively more appealing to income investors.
- Savings rates: Interest paid on savings accounts and CDs would probably decline, making saving a less rewarding activity.
- Investment sentiment: With rates trending downward, money tends to flow out of lower-yielding savings and bonds and into higher-risk assets like stocks and real estate, fueling bullish sentiment. However, some analysts are concerned that elevated stock market valuations and other economic factors could pose risks.