The U.S. Federal Reserve cut its benchmark interest rate by 25 basis points, lowering the Fed Funds rate range to 4.00%–4.25%. It was the first cut since December 2024.
📈 How Markets Reacted
Stocks
- European equity markets rose, with tech stocks leading as investors embraced risk assets following the Fed’s move.
- U.S. indices also had mixed but cautiously positive responses. Some initial gains, though tempered by concerns about inflation, labor market weakness, and how quickly future cuts might come.
Bitcoin & Ethereum (and Crypto More Broadly)
- Bitcoin (BTC) rose modestly after the announcement — about 1% in the minutes following the cut. It has since been relatively stable.
- Ethereum (ETH) also saw small gains (~1-2%) in the 24h post-cut.
- Overall crypto markets reacted more mutely than many had hoped. That’s likely because the move was largely anticipated; the rate cut was “priced in” already by many traders.
🔍 What the Fed is Saying & What It Implies
- Powell described the decision as a “risk-management” cut. The Fed is trying to balance between inflation (still above target) and signs that the labor market is weakening.
- Internal forecasts suggest there are more cuts expected this year — though how many, when, and how aggressively is not certain. Some officials foresee two or more, others less.
🔭 What to Expect Next
Here are likely scenarios and what to watch:
| Scenario | What Happens | Key Triggers / Risks |
|---|---|---|
| Gradual Easing | More cuts of 25bps through Q4, possibly into early 2026. Stocks and crypto might enjoy a smoother risk‐on environment. Lower yields and cheaper borrowing help growth sectors. | Inflation continues downward, employment softens but not collapses; Fed keeps dovish tone. |
| “Stop-and-Go” | After this first cut, maybe a pause. Markets get volatile when data (jobs, inflation) disappoints. Risk assets have ups and downs. | Inflation proving “sticky” (esp. services, housing), wages rising; strong economic surprises that force the Fed to reconsider. |
| Aggressive Easing (Tail Risk) | If the economy shows more signs of serious slowdown, more drastic cuts might be considered. Could lead to a sharper rally in crypto/stocks but also risk of overleveraged trouble. | Sharp drop in growth indicators, credit or banking stress, geopolitical or external shocks. |
🧮 What This Means for Investors
- Equities & Growth Stocks may benefit more than cyclicals if borrowing costs moderate and consumer confidence holds. Tech already responded well in Europe.
- Crypto could see tailwinds, especially if the dollar weakens and real yields fall. But volatility remains high; gains may come in bursts.
- Safe Havens / Gold / Bonds may also move: if inflation surprises to the upside, safe assets may draw flows. But if the Fed’s stance stays dovish, real yields could fall, helping risk assets.
- Watch Key Data: CPI, PCE inflation, employment (non-farm payrolls), wages, ISM/manufacturing, housing starts. These will influence both market sentiment and what the Fed is likely to do next.
✅ Final Thoughts
The 25 bps cut is more symbolic than transformative, but it marks a shift: from tightening to cautious easing. Markets were already expecting it, which is why reactions were not explosive.
For now, the question isn’t if cuts will happen again — it’s how many, how fast, and how dovish the Fed will sound going forward.