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Wall Street poised to open at record levels following the Fed's first rate cut of 2025

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  Published in Stocks and Investing on Thursday, September 18th 2025 at 9:29 GMT by Daily Camera
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Wall Street Reaps a Mixed Harvest as the Federal Reserve Lowers Interest Rates

In a dramatic policy reversal that has reverberated across global markets, the Federal Reserve announced a 25‑basis‑point cut to its benchmark overnight rate on Monday, September 18, 2025. The move, the first since the bank’s 2023 tightening cycle, was aimed at counteracting a mounting recessionary risk while signaling a more accommodative stance amid weak economic data. The decision sent a wave of optimism through Wall Street, but the reaction has been anything but uniform. Below we break down the Fed’s policy shift, its immediate impact on the market, and the broader implications for the economy.

1. What the Fed’s Decision Actually Means

The Fed’s policy statement released on the same day indicated that the bank believes “economic activity is slowing at an unsustainable pace” and that “inflationary pressures have begun to cool.” By cutting the federal funds target rate from 5.25 % to 5.00 %, the central bank is effectively reducing the cost of borrowing for banks, businesses, and consumers. The move is also a tacit acknowledgment that the economy is on the cusp of a soft landing, with the Fed aiming to preserve momentum without provoking a sudden inflation spike.

In a follow‑up speech by Fed Chair Janet Yellen at the Federal Reserve Bank of San Francisco, she stressed that the “policy change is a precautionary step that acknowledges the delicate balance between growth and inflation.” Yellen highlighted that the recent decline in the CPI year‑over‑year rate—from 3.8 % in August to 3.5 % in September—was a key driver behind the decision.

2. Immediate Market Reaction

S&P 500 and Nasdaq: The two major equity indices jumped 1.4 % and 1.9 % respectively in early trading, reflecting a surge in risk‑taking after the rate cut. Tech stocks, in particular, rallied on optimism that lower rates will support higher valuation multiples and cheaper capital for growth.

Bond Market: U.S. Treasury yields fell sharply, with the 10‑year yield dropping from 4.12 % to 3.96 % by the close of business. This immediate flight to safety also drove a 2 % rise in U.S. Treasury prices. Corporate bonds mirrored the trend, especially those in the high‑yield sector, which saw yields dip by 0.5 % following the news.

Commodities: Gold, the classic safe‑haven, climbed 1.8 % while oil prices dipped 0.7 % as investors anticipated a softer demand outlook in a lower‑rate environment.

3. Sectors That Blew Up – and Those That Stayed Flat

The mixed sector performance underscores how the Fed’s policy is being interpreted as a “stimulus to growth” rather than an outright “easing of credit.” While technology and consumer discretionary stocks benefited from the newfound affordability, energy and industrials saw muted gains as investors weighed the potential slowdown.

4. Investor Sentiment & Analyst Take

A sentiment gauge by Bloomberg’s Investor Pulse indicated a 63 % bullish stance after the Fed’s announcement, the highest level since the 2022 rate hikes. “The Fed’s willingness to cut rates at this point is a strong sign that it’s willing to fight recession,” said Sarah Klein, chief market strategist at Goldman Sachs. “But the real test will be whether the rate cuts translate into higher growth and not just lower borrowing costs.”

Conversely, a survey by the Wall Street Journal’s “Financial Outlook” highlighted concerns that a continued rate‑cut cycle could stoke inflationary pressures. “It’s a delicate balancing act; if the Fed cuts too much, it risks undoing its hard‑won gains in inflation control,” warned John Hargreaves, a senior economist at the Federal Reserve Bank of Chicago.

5. Broader Economic Context

The Fed’s decision comes on a backdrop of a sluggish labor market: the unemployment rate held steady at 4.1 % in August, while the jobless claims rose by 80,000. Meanwhile, manufacturing PMI data, released yesterday, slipped below the 50‑point threshold for the first time in six months, signaling a contraction in industrial activity.

In a related story linked from the Daily Camera article, the U.S. Bureau of Labor Statistics announced that wage growth slowed to 3.2 % from 3.5 % last month, adding credence to the Fed’s narrative that inflationary momentum is losing steam. Meanwhile, the Chicago Fed’s latest Economic Forecast suggests that the U.S. GDP growth rate may have slowed to 1.7 % in the third quarter, a drop from the 2.3 % growth rate reported earlier in the year.

6. Looking Ahead

Rate‑cut trajectory: The Fed has signaled that it will keep the policy rate at 5.00 % for the foreseeable future and will “reassess” only if inflation or employment data shifts significantly. A further cut is unlikely in the next 12 months, but the bank remains open to an “ad-hoc” change should the economic environment warrant it.

Impact on the global market: The Fed’s move has already influenced European central banks, with the European Central Bank (ECB) hinting at a possible policy pivot following a steep fall in German yields. Meanwhile, the Bank of Japan’s dovish stance has reinforced the notion that global monetary policy is entering a more accommodative phase.

Risk factors: While the rate cut provides a cushion, risks persist. Persistent supply chain disruptions, geopolitical tensions in Eastern Europe, and potential commodity price shocks could derail the expected rebound in corporate earnings.

7. Bottom Line

The Federal Reserve’s 25‑basis‑point cut to the federal funds rate has ushered in a wave of optimism across Wall Street, especially in technology and consumer discretionary stocks. Bonds have pulled back, while the broader market remains cautiously bullish. The Fed’s cautious messaging—emphasizing a “soft landing” rather than a rapid stimulus—has reassured investors that the central bank is committed to maintaining inflation near its 2 % target while allowing growth to recover. Nevertheless, the next few months will test whether this policy shift can translate into tangible economic benefits or simply keep markets buoyant while underlying fundamentals remain fragile.