US Fed Rate Cut News Highlights: Powell calls Fed’s rate cut a ‘risk management move,’ not recession response

Powell also highlighted a less visible but growing challenge: declining response rates to economic surveys. He warned that this issue affects the reliability of data the Fed relies on, particularly labour statistics.

“This is a problem happening everywhere,” he noted, pointing to similar struggles in other countries. In the UK, for instance, the Office for National Statistics has faced widespread criticism and shaken public confidence in its labour market reports due to dwindling survey responses.

With President Donald Trump openly demanding bigger and faster rate cuts, Powell used parts of his press conference to subtly reinforce the Fed’s independence.

“Everything we do is in service to our public mission,” Powell said in his closing remarks. “It is deeply in our culture to focus on incoming data and never consider anything else. We don’t frame these questions at all or see them in terms of political outcomes. We’re trying to serve the American people as best we can.”

Federal Reserve Chair Jerome Powell downplayed the immediate impact of quarter-point rate cut, framing it as part of a broader trajectory rather than a single, transformative move.

“A quarter point cut in itself won’t make a huge difference to the economy,” Powell said, noting that what matters most is the entire path of rates and how it shapes expectations in markets. He added that while traders may be pricing in more easing, the Fed is not endorsing that view: “I’m not blessing what the market’s doing at all. I’m just saying it’s not just one action.”

The US dollar index initially dropped 0.3 percent after the Fed’s rate announcement but clawed back losses as Powell spoke, ending the session slightly higher by 0.1 percent.

Meanwhile, the 10-year Treasury yield briefly fell below 4 percent as investors rushed into government bonds following the Fed’s cut. The drop underscored expectations for cheaper credit ahead, since the 10-year yield serves as a benchmark for mortgages and consumer loans.

Amid the broader decline, the Russell 2000 index of smaller companies gained 1.2 percent.

Wall Street’s optimism faded Wednesday afternoon as Federal Reserve Chair Jerome Powell’s comments on the rate cut rattled markets.

The Dow Jones Industrial Average, which had surged nearly 480 points (about 1 percent) earlier in the session, reversed course and slipped into the red. The S&P 500 dropped 0.8%, while the Nasdaq Composite slid 1.2 percent as tech shares bore the brunt of selling.

Despite the pullback, Wall Street’s so-called fear gauge, the VIX, remained little changed, suggesting investors saw limited volatility in the near term.

Federal Reserve Chair Jerome Powell cautioned Wednesday that the U.S. economy is entering a period of unusual risk, with slowing growth colliding with still-elevated inflation.

“Ordinarily, when the labor market is weak, inflation is low, and when the labor market is strong, inflation is high,” Powell said. “Now we have a two-sided risk of weaker growth and higher inflation. There is no risk-free path.”

He acknowledged that this environment is driving a wide dispersion of views within the central bank. While projections signal two more rate cuts this year, 7 of 19 Fed officials penciled in fewer reductions, underscoring divisions that could complicate future meetings.

On inflation, Powell reiterated his view that tariffs will drive a one-time increase in goods prices this year but are unlikely to trigger a lasting wave of inflation.

“Inflation will move up this year because of the effects on goods prices from higher tariffs, and that will be a one-time effect,” Powell said. “We can’t just assume that though. Our job is to make sure that happens.”

He added that the prospect of a persistent inflation outbreak has declined, giving policymakers more confidence to focus on growth and jobs.

Federal Reserve Chair Jerome Powell described Wednesday’s quarter-point rate cut as a 'risk management' decision, stressing that the central bank is not reacting to an economy already in recession.

Powell pointed to the Fed’s updated projections, which now show U.S. growth running slightly higher through 2027 than forecasts made just three months ago. The move, he argued, is about getting ahead of risks, not responding to a downturn that has already taken hold.

The first question of the press conference centered on Stephen Miran, Trump’s newly appointed Fed governor, who controversially retained his White House role while joining the central bank. Powell declined to engage directly, saying only that “we’re strongly committed to maintaining our independence” and offered no further comment.

On trade policy, Powell said the inflation impact of Trump’s tariffs is not yet fully visible but could prove to be a 'one-time shift in the price level' rather than a sustained driver of higher inflation.

Still, he emphasised the Fed’s responsibility to ensure that temporary tariff effects don’t morph into an 'ongoing inflation problem.'

Powell stressed that each decision would be driven by incoming data, but noted that officials’ new projections point to two more cuts at the Fed’s final meetings of 2025.

Rates, he said, had been “at a clearly restrictive level,” but with the labour market cooling over the summer, “the need for that is no longer the case.”

Federal Reserve Chair Jerome Powell said Wednesday that the central bank is facing one of its most difficult balancing acts in years, as inflation pressures from tariffs collide with a weakening U.S. labour market.

“Inflation for goods has picked up, though disinflation is continuing for services,” Powell told reporters after the Fed cut rates by a quarter point. He added that inflation expectations have also risen this year on tariff headlines, a trend the Fed is determined to keep from becoming entrenched.

At the same time, Powell acknowledged the labor market is showing cracks, calling it 'a challenging situation' that puts the Fed’s dual mandate, stable prices and maximum employment, into direct tension.

The Federal Reserve lowered its benchmark interest rate by 25 basis points on Wednesday, its first cut since December 2024. Policymakers also projected another 0.5% of cuts before year-end. But beneath that headline decision lies a growing split among officials about just how far the Fed should go.

A dot plot that tells two stories

The Fed’s dot plot, which maps individual policymakers’ forecasts for the benchmark rate, showed a wide spread of views:

One official projected rates at 4.4 percent by year-end, implying only modest easing.

Another dot — almost certainly linked to newly appointed Governor Stephen Miran, pointed to a rate as low as 2.9 percent, signaling a preference for aggressive cuts.

The divergence highlights how fractured the policy outlook has become as officials juggle weakening job data and still-sticky inflation.

The Federal Open Market Committee voted 11 to 1 to approve a quarter-point rate cut on Wednesday, with newly appointed Governor Stephen Miran casting the lone dissent.

At the Fed’s July meeting, Governors Michelle Bowman and Christopher Waller had pushed for a similar 25-basis-point trim, but both backed the September decision and appeared satisfied with the outcome.

All three, Miran, Bowman, and Waller, were appointed by President Donald Trump, who has been pressuring the central bank to cut rates more aggressively.

US stocks moved cautiously higher on Wednesday afternoon after the Federal Reserve cut its benchmark interest rate by 25 basis points, in line with market expectations.

The Dow Jones Industrial Average led gains, climbing about 450 points, or 1 percent, while the S&P 500 added 0.1 percent. The Nasdaq Composite, however, slipped 0.3 percent as tech shares lagged.

In its policy statement, the Fed said it remains “attentive to the risks to both sides of its dual mandate” and noted that “downside risks to employment have risen.”

Meanwhile, bond markets reacted swiftly. Treasury yields moved lower as investors piled into government debt to lock in prevailing higher rates. The 10-year Treasury yield fell back below 4 percent.

Dow jumps 400 points as Fed lowers rates and forecasts two more cuts this year. S&P 500 all-time high.

Alongside the decision, the Fed released its closely watched 'dot plot,' the grid of policymakers’ individual forecasts for interest rates.

The median projection pointed to two more rate cuts before year-end.

The Federal Open Market Committee approved the cut by an 11–1 vote, a stronger show of unity than many on Wall Street expected.

According to CNBC, Stephen Miran, the newly confirmed governor and Trump ally, dissented. He pushed for a deeper 50 bps cut instead.

Michelle Bowman and Christopher Waller, also Trump appointees and seen as potential dissenters, ultimately backed the quarter-point move.

The Federal Reserve on Wednesday lowered its benchmark interest rate by 25 basis points, setting the federal funds target range at 4 percent to 4.25 percent . It marks the central bank’s first rate cut since December 2024 and the first of President Donald Trump’s second term.

The move ends a nine-month pause in Fed policy, during which officials held rates steady as they monitored how the administration’s sweeping tariff policies were feeding through to inflation and growth.

The suspense is over. The Federal Reserve has announced a 25-basis-point rate cut.

The central bank cut its benchmark lending rate by a quarter point to a new range of 4 percent to 4.25 percent.

From inflation surge to steep hikes

The Federal Reserve’s current stance can’t be understood without rewinding to 2022. That summer, U.S. inflation hit a 40-year peak of 9.1 percent. To rein in runaway prices, the Fed embarked on its most aggressive tightening campaign in decades, lifting rates from near-zero levels to 5.25 percent–5.5 percent by July 2023, the highest in more than 20 years.

Cooling inflation opened the door

By 2024, inflation had finally cooled, giving Powell’s Fed room to shift gears. Rate cuts returned to the conversation as consumer prices eased and the economy showed resilience. Markets cheered the start of an easing cycle, anticipating smoother financial conditions for households and businesses.

Why the pause in 2025?

This year, however, the Fed has put the brakes on cutting further. The central bank is trying to balance two competing forces:

Sticky inflation risks: Consumer prices remain above the Fed’s 2 percent target.

Tariff uncertainty: President Donald Trump’s new tariffs are rippling through supply chains, raising the risk of fresh cost pressures.

Hawkish or dovish?

Wall Street traders are tuned in less to the cut itself, widely expected to be 25 basis points, than to Powell’s tone.

A dovish Fed could spark a rally if Powell signals more cuts are on the table.

A hawkish Fed, stressing inflation risks, could pull markets lower.

“Stocks will likely rally if the Fed is dovish and ready to lower rates further and take a dive if the central bank is hawkish,” José Torres, senior economist at Interactive Brokers told CNN.

JPMorgan’s trading desk has cautioned that the timing of the Fed decision could collide with broader market dynamics, according to CNBC.

“Fed Day may act as a ‘sell-the-news’ event as investors take time to consider the Fed future reaction function, potentially stretched positioning, a temporarily weaker corporate buyback bid, waning retail investor participation, and quarter-end rebalancing,” the trading desk wrote.

In other words, traders may use the news as an excuse to book profits, particularly after a strong run-up into September.

Longtime market strategist Ed Yardeni has been even more blunt, arguing that cutting rates in the current environment risks doing more harm than good.

He likened the move to ‘throwing gasoline on a fire’, warning that easing monetary policy while inflation remains above target could stoke fresh price pressures.

Jobs collapsing: On a three-month average, non-farm payroll growth has cratered, from more than 175,000 additions at the start of 2025 to just 29,000 by August (US Bureau of Labor Statistics). To make matters worse, revisions erased 911,000 jobs from last year’s totals.

Inflation sticky: Consumer prices have held above 2 percent since February 2021. With tariffs climbing, the pressure is only building. Goldman Sachs estimates that by October 2025, U.S. households will end up shouldering about 67 percent of the tariff burden.

Powell’s warning: At Jackson Hole, Fed Chair Jerome Powell described the labor market as being in a 'curious kind of balance,' cautioning that risks to employment could “materialise quickly.”

Waller’s caution: Member of the Federal Reserve Board of Governors, Christopher Waller added that delaying action risks leaving the central bank 'behind the curve.'

Narayana Kocherlakota, former president of the Minneapolis Fed and now a professor at the University of Rochester, told CNN there is ‘a very strong economic argument’ for a large cut.

Still, he sees a problem:

“Trump’s pressure on the Fed really contaminates that option. The risk is it would look like the Fed has been captured by the White House and officials are doing the president’s bidding.”

For a central bank that guards its independence fiercely, perception can be just as important as policy.

The dilemma: jobs vs. inflation

Here’s the bind the Fed finds itself in:

Weakening jobs market: Employment data has softened, raising fears of a slowdown.

Stubborn inflation: Price pressures remain elevated, meaning aggressive rate cuts could stoke even more inflation.

That’s why Kocherlakota says there are ‘legitimate arguments’ for all three possible outcomes on Wednesday, no change, a quarter-point cut, or even a half-point cut.

When the Federal Reserve cuts interest rates, it lowers borrowing costs. In theory, that should encourage spending, hiring, and investment, helping the economy avoid a downturn.

But here’s the twist: sometimes a rate cut is less a cure and more a symptom. The Fed usually cuts only when growth is already faltering, jobs are weakening, or markets are stressed. That can make investors and households think: If the Fed is cutting, things must be bad.

When cuts worked as a cure

1990s 'soft landing': The Fed cut rates in 1995 amid slowing growth, helping extend one of America’s longest expansions.

COVID-19 shock (2020): Rates were slashed to zero, combined with fiscal aid, cushioning the pandemic collapse.

When cuts signalled trouble

2001 dot-com bust: The Fed cut rates aggressively, but the bubble had already burst. The cuts came asthe  recession unfolded.

2007-08 crisis: Cuts started, but they signalled deep financial stress; recession was unavoidable.

Stephen Miran, just sworn in to the Fed, is one of the few governors in history to also hold a senior White House economic policy job at the same time, sparking criticism of a conflict of interest.

If currency weakens, import costs rise → feed into inflation (especially for goods and food). This is called ‘imported inflation.’

Also, global interest rates affect cost of capital, if Indian companies are borrowing from global sources, costs increase. They may raise prices or cut back on investment, possibly affecting supply and jobs.

Daily life impact:

Food, petrol, electricity, imported branded goods see price rises.

The Fed itself doesn’t directly set Indian interest rates, but its policy influences global interest rates, capital flows, and expectations. If U.S. rates go up, foreign investment shifts, rupee might weaken, inflation risks rise in India. RBI (Reserve Bank of India) may respond by keeping Indian interest rates higher or delaying rate cuts to prevent inflation from getting worse.

More expensive imports/inflation mean banks may see higher input costs, risk premiums increase, which can affect interest rates on loans, EMIs.

Daily life impact:

Car loan EMIs: If you’re buying a car financed on a loan, and finance cost in India is high (because RBI has to keep rates up), your monthly payment might be steeper.

Home / mortgage EMIs: Similar logic, rate hikes (globally) → pressure on rupee & inflation → RBI keeps tight → EMIs stay high.

Even if the Fed cuts, unless inflation in India also cools and RBI feels safe, Indian lending rates might not drop immediately.

Imagine the Fed turning a knob. That’s not just an American thing; parts of that change ripple all the way to India. Here's how it can affect ordinary people, in concrete ways, using verified observations and known economic channels.

What happens:

When the U.S. Fed raises interest rates, U.S. dollar assets become more attractive. Investors around the world (including those with money in India) may pull money out of places offering lower relative returns (like India) and move it to the U.S. This can cause the rupee to weaken vs the U.S. dollar.

Conversely, when the Fed cuts rates, U.S. yields drop, making other markets (including India) more attractive again. Foreign money may flow into Indian equities and bonds, strengthening the rupee.

Daily life impact:

If you import stuff, like an iPhone or an imported car part, cost in rupee goes up when the rupee weakens. The seller/importer has to pay more USD to get the same item, which often gets passed on to consumers.

Fuel and energy imports also get more expensive, pushing up transportation costs; that in turn can increase prices of goods you buy (groceries, essentials, electronics, etc.).

The Fed’s 2 percent inflation target wasn’t born overnight...

Before there was a target

For decades, the Fed had no explicit public inflation target. Policy was driven by multiple vague goals: stable prices, full employment.

Internal discussions about what target should be used first emerged in the 1990s. Some Fed members worried that without clarity, inflation expectations would drift upward.

How 2 percent won out

New Zealand, itching to anchor its inflation expectations, adopted an inflation target in the early 1990s. That inspired many central banks, including the US.

In 1996, Fed members like Richmond Fed President Al Broaddus pushed for making the inflation goal more explicit; Janet Yellen and others voiced support. But it wasn’t made public right away.

Finally, in 2012, the Fed adopted the 2 percent inflation target officially in its Statement on Longer-Run Goals and Monetary Policy Strategy.

Here’s the full list of who will be voting this time around:

Jerome Powell, Fed Chair

John Williams, Vice Chair and New York Fed President

Michelle Bowman, Governor and Vice Chair for Supervision

Michael Barr, Governor

Philip Jefferson, Governor

Christopher Waller, Governor

Lisa Cook, Governor (court-affirmed)

Stephen Miran, Governor (newly confirmed)

Susan Collins, Boston Fed President

Austan Goolsbee, Chicago Fed President

Alberto Musalem, St. Louis Fed President

Jeffrey Schmid, Kansas City Fed President

FOMC once launched something called Operation Twist (starting in 1961, revived in 2011) to change the shape of the yield curve. Instead of changing the Fed funds rate, they sold short-term Treasuries and bought long-term ones. The idea was to push long rates down without touching short ones too much.

Meanwhile, across Capitol Hill, Stephen Miran, a Trump pick known for his market background, was confirmed by the Senate just hours before the Fed meeting opened. That means he walks into the room not as an observer but as a full voting member.

Just as the Fed’s two-day meeting was set to begin, a federal appeals court issued an emergency ruling that allows Governor Lisa Cook to participate and vote. Cook had been targeted for removal by Trump, but the court’s move ensures her presence in this critical round of deliberations.

Her vote matters: Cook has been seen as a steady voice within Chair Jerome Powell’s coalition.

Heading into most Federal Reserve meetings, the script is usually straightforward: the same set of policymakers sit down, cast their votes, and decide where interest rates are headed. Not this time.

In the hours leading up to the September policy gathering, political and legal drama reshaped the very makeup of the central bank’s voting roster. President Donald Trump’s bid to oust Governor Lisa Cook collided with the Senate’s last-minute confirmation of Stephen Miran, turning what’s normally a staid process into high-stakes theater.

In the late 1960s and 1970s, the U.S. economy saw high inflation (sometimes over 10–12 percent) combined with weak growth and rising unemployment, a stagflation combo most economists thought was almost impossible.

The Fed often tried to fight both inflation and unemployment at the same time, flipping between tightening and loosening policy. These ‘stop-and-go’ moves confused markets and did little to anchor expectations.

Delayed reaction to inflation: Inflation rose fast; the Fed hesitated in raising rates decisively. By the time the Fed under Paul Volcker acted, inflation expectations had become unanchored.

Political influence: Presidents and legislators often pushed for lower unemployment, sometimes even when inflation was worsening. That diluted Fed resolve.

The Fed is required by law to report to Congress twice a year on its monetary policy goals and economic outlook. These are known as the 'Humphrey-Hawkins' testimonies.

The Fed has two jobs: keep prices stable and people employed. Easy on paper, messy in reality.

The two goals

Price stability: Keep inflation around 2 percent so households and businesses can plan.

Maximum employment: Ensure people who want jobs can find them.

Why it’s hard

Cut rates to help jobs → inflation might flare.

Raise rates to kill inflation → unemployment may rise.

Today’s challenge

Inflation is still sticky above 2 percent.

Jobs data has weakened, with slower hiring and rising unemployment.

Powell must juggle both, and whichever side he leans toward, critics pile on.

Why it matters globally

The Fed’s dual mandate isn’t just about America. When Powell fights inflation, emerging markets feel the capital flow shock. When he supports jobs, global investors rush into higher-yielding assets abroad.

The Fed’s headquarters in Washington, D.C., the Marriner S. Eccles building, is named after the chair who led the Fed through the Great Depression reforms.

Every Fed move creates winners and losers; here’s the scorecard.

When rates go down (cuts)

Winners:

Borrowers (cheaper loans, mortgages, credit cards).

Stock markets (liquidity boost).

Emerging markets like India (higher inflows).

Losers:

Savers (lower returns on deposits, bonds).

Currency value (dollar weakens, sometimes).

When rates go up (hikes)

Winners:

Savers (better yields on deposits, bonds).

Dollar (strengthens vs other currencies).

Losers:

Borrowers (higher EMIs, tighter corporate borrowing).

Stock markets (liquidity dries up).

FOMC transcripts are published with a five-year lag. That means in 2025, the public can read detailed transcripts of what policymakers said in 2020 meetings. The five-year lag was established in 1994 as a compromise between calls for greater transparency and the need for a period of confidential internal deliberation.

Despite weaker jobs and sticky inflation, most economists argue the US isn’t on the brink of recession. “We’re not at a break-glass moment,” Vincent Reinhart, chief economist at BNY Investments told Associated Press. “This is a recalibration.”

Translation: Powell is trimming rates, not slashing them. The Fed wants to show it’s flexible enough to respond to slowing growth, without panicking markets or reigniting inflation.

When the Fed cuts rates, it usually follows one of two paths:

Slow and steady: small, measured cuts, meant to fine-tune the economy and keep growth steady.

Rapid fire: aggressive cuts in quick succession, usually when recession risk is flashing red.

For now, most economists think Powell will stick to the first approach, what they call a ‘recalibration’ of rates. That could mean as many as five cuts by mid-2026, gradually nudging borrowing costs closer to neutral territory, where they neither stimulate nor slow growth.

Wall Street futures are pricing in three cuts this year and two more by June 2026, according to CME’s FedWatch tool.

Wall Street was on edge Wednesday as traders waited for the Federal Reserve’s policy announcement and, perhaps more importantly, its outlook for the months ahead.

The S&P 500 slipped 0.1 percent, while the Nasdaq Composite fell 0.4 percent. The Dow Jones Industrial Average bucked the trend, climbing 300 points, or 0.6 percent.

Paul Volcker, Fed chair from 1979–1987, raised interest rates to nearly 20 percent in 1981 to crush double-digit inflation. It caused a painful recession but is credited with stabilising the US economy.

Johnson told CNBC that Fed Chair Jerome Powell has room to maneuver. With October and December FOMC meetings still ahead, the Fed can ease further if incoming data shows more cracks.

“If I were Powell, I’d go with 25 bps now,” she said, adding that Powell had already signaled at Jackson Hole that a cut was coming given labor market concerns.

For her, the middle path makes sense: acknowledge weakness without overstimulating an economy that still looks fundamentally resilient.

Johnson acknowledged the weak jobs data that has fueled calls for a deeper 50 bps reduction. But she dismissed those figures as backward-looking, saying they don’t fully reflect the current state of the economy.

Instead, she pointed to stronger signals:

Wage growth remains solid, suggesting the labour market isn’t collapsing.

Retail sales are up, showing consumers are still spending despite inflation hovering around 3 percent.

Her takeaway: the Fed should avoid a jumbo cut and keep its options open.

As the Federal Reserve prepares to announce its September rate decision today, market watchers are split: 25 basis points or 50? Futures overwhelmingly price in a quarter-point move, but political and economic crosswinds have made this one of the most closely watched meetings of the year.

Into this debate stepped Franklin Templeton CEO Jenny Johnson, who told CNBC she expects the Fed to stick with a 25 bps cut, and not go bigger.

Alan Greenspan holds the record as the longest-serving Fed chair, running the central bank for nearly 19 years (1987–2006) under four different presidents.

Siddharth Chaudhary of Bajaj Finserv AMC told Moneycontrol that India could still squeeze in another cut. “Inflation’s well below target, growth risks are creeping in, and the RBI may want to get ahead of trade-related shocks,” he said.

But he flagged a risk: India must maintain a healthy interest rate differential with the US to safeguard external stability.

Market odds are overwhelming: CME FedWatch shows a 94% chance of a 25 bps cut, 6 percent for a 50 bps move. But this may be the start, not the end.

Varun Joshi of GoalFi told Moneycontrol that job revisions show 911,000 fewer US jobs than reported earlier, raising recession fears. “Big brokers like Morgan Stanley and Deutsche Bank now forecast up to four Fed cuts this year,” he said.

If that happens, Indian equities could enjoy sustained FII inflows, a stronger rupee, and a boost for rate-sensitive sectors.

At its July meeting, the Fed kept rates unchanged for a fifth time. Indian markets slipped that day, Sensex dropped nearly 300 points, Nifty closed below 24,800.

But the real blow wasn’t the Fed’s decision. It was Trump’s tariff salvo on India, which hit investor sentiment harder than steady US rates.

Fed moves don’t just set the tone for Wall Street, they shape flows into India.

• IT stocks benefit if US consumers spend more.
• RBI policy often mirrors the Fed, at least directionally. The MPC meets September 29–October 1, with inflation low enough to allow a cut.
• Liquidity-sensitive sectors like real estate and banks thrive when global money is easier.

Scenario 3: No cut, volatility returns

The least likely scenario is also the most volatile. A Fed hold could spook markets.

Maurya warned it could “trigger short-term volatility in rate-sensitive sectors.” Singhania said it would tilt bond flows back toward the US, narrowing incentives to invest in India.

Shetty added that while a no-cut move might surprise, tariffs and trade tensions remain a bigger drag on sentiment than Fed policy alone.

Scenario 2: A 50 bps jumbo cut, markets cheer, but cautiously

A half-point cut would split opinion. For some, it’s a liquidity game-changer.

Maurya argues such a move could “spur world liquidity, boost FPI inflows, and sharply improve sentiment in emerging markets like India.”

Singhania takes a more cautious view: “Equities will get a lift, but it’s not a game-changer. Export-heavy sectors and companies with overseas borrowings may benefit, while broader market upside remains capped.”

Either way, India gains from a wider yield differential and stronger FPI flows.

Scenario 1: A 25 bps cut, steady as she goes

A quarter-point cut is already baked into global markets. For India, that means muted reaction.

“A cut of 25 bps is well priced and would provide stability, as investors will take it as a cautious step,” Siddharth Maurya, MD at Vibhavangal Anukulakara told Moneycontrol.

Puneet Singhania of Master Trust Group added, “The yield spread with the US would improve, making Indian bonds relatively more attractive.”

Translation: steady foreign inflows, stable rupee, and no big shocks for equities.

The Fed has cut rates to zero only twice in modern history, once during the 2008 global financial crisis and again in 2020 during the COVID-19 pandemic.

The backdrop here is Trump’s sustained pressure campaign against the Fed. He has:

Repeatedly demanded massive, unrealistic rate cuts.

Accused Powell of mismanaging a $2.5 billion headquarters renovation.

Tried to oust Governor Lisa Cook with legal claims of mortgage fraud, which she denies.

Trump has also fast-tracked loyalists onto the Fed board, including Miran.

Christopher Waller and Michelle Bowman, both elevated during Trump’s first term, already dissented in July, pushing for a bigger cut. They could again favor a half-point move, a Bloomberg report suggests.

Stephen Miran, confirmed just this week, may join them. A former Trump economic adviser, Miran has been an outspoken defender of White House policies and has left the door open to returning to the administration later.

If all three push for more aggressive easing, the Fed won’t change the outcome, Powell still has the votes.

Constructive disagreement is supposed to be a healthy feature of central banking. But this week, the Federal Reserve could see something it almost never does: a partisan-flavored wave of dissent.

Economists and futures markets widely expect the Fed’s rate-setting committee to deliver a quarter-point cut to 4–4.25 percent. Yet President Donald Trump, who has spent years berating Jerome Powell, wants far deeper cuts. And some of his appointees may be ready to break ranks to show they’re on his side.

The US housing market took another hit in August, with both new construction and permits falling well short of expectations. The numbers highlight how homebuilding, a key driver of the economy, continues to struggle under the weight of high financing costs and softer demand.

The numbers that disappointed

Building permits came in at 1.31 million (seasonally adjusted annual rate), down 3.7 percent from July and below the 1.37 million economists had forecast.

Housing starts fell even harder, dropping 8.5 percent to 1.307 million, also missing the 1.37 million consensus.

Completions offered a rare positive, up 8.4 percent from July, but still down 8.4 percent compared with a year earlier, showing how far the sector lags behind last year’s levels.

The US dollar lost its formal gold backing in 1971, when President Richard Nixon ended the Bretton Woods system. Since then, the Fed has relied solely on monetary tools to control inflation.

The October 1 RBI policy meet could turn into one of the most consequential in years. Here’s why:

Inflation is under control, possibly heading even lower with GST reforms.

Growth momentum has steadied, supported by government consumption boosts.

The Fed’s easing cycle reduces global pressure on the rupee and yield spreads.

Put simply: if Powell takes the plunge, the RBI may not want to be left standing on the diving board.

Globally, traders have already priced in a 95 percent chance of a quarter-point cut by the Fed, according to the CME FedWatch tool. Powell has warned about “rising labor market risks,” even as inflation remains stubborn.

Morgan Stanley sees this as the start of a long easing cycle: four consecutive cuts through January 2026, followed by two more by mid-year.

For India, that trajectory matters. A dovish Fed eases the pressure on capital flows and gives the RBI breathing room to manage imported inflation risks tied to tariffs under the Trump administration.

Market participants broadly expect a 25-basis-point cut in October. Some even see scope for a deeper move if external headwinds intensify.

Kruti Chheta of Mirae Asset Investment Managers told Moneycontrol:

“A potential Fed rate cut opens up space for the Reserve Bank of India to consider further easing. There remains room for a 25–50 basis point cut within the current easing cycle.”

Abhishek Khudania of Client Associates agreed, pointing out that comfort on inflation strengthens the case:

“With CPI inflation appearing comfortably within the RBI’s 4 percent target for now, if the Fed cuts rates, the RBI could take a cue and reduce the repo by another 25 basis points. This would also help preserve the India–US 10-year yield spread, which has considerably narrowed.” That spread, now at 2.3 percent, is the slimmest since 2005.

Barclays, meanwhile, is penciling in a 25-basis-point cut to 5.25 percent but warned geopolitics and tariffs could force more easing down the road.

For three straight quarters, India’s retail inflation has stayed below the RBI’s 6 percent tolerance band, giving policymakers the confidence to consider monetary easing.

Headline CPI rose only modestly to 2.07 percent in August from 1.61 percent in July.

Core inflation held steady at 4.1 percent, comfortably within the RBI’s target zone.

GST rationalisation and tax cuts on food and essentials are expected to cool prices further, potentially shaving off 50 basis points of inflation through FY25–26.

That’s not just good optics, it gives the RBI firepower to cut rates without spooking bond markets.

When the US Federal Reserve sneezes, emerging markets often catch a cold. This time, however, the sneeze could bring relief. As we understand that with Jerome Powell and his team widely expected to start an easing cycle with a 25-basis-point rate cut, markets believe the Reserve Bank of India (RBI) may soon follow suit.

The timing matters: India’s Monetary Policy Committee meets on October 1, just days after the Fed decision. And the conditions are lining up for a cut.

Jerome Powell is the first Fed chair without a Ph.D. in economics since the 1970s. He is trained as a lawyer and worked in investment banking before entering government service.

Wall Street was in a holding pattern on Wednesday morning. The S&P 500 edged up just 0.1 percent, the Nasdaq Composite slipped 0.1 percent, and the Dow Jones Industrial Average outperformed with a 158-point gain, or 0.3 percent.

Paul McCulley, former Pimco chief economist, summed it up on CNBC: “Quite frankly, I don’t know how I would explain a 50 basis point cut in the current context without saying the labor market really is worrying me intensely, and I don’t think that’s the message Chair Powell wants to communicate, at least not now.”

Markets are already looking past today. The Fed may cut today, but futures show more easing ahead in October and December. Here’s what’s priced in.

Market pricing

September: 100 percent chance of 25 bps cut.

October + December: 68 percent chance of 75 bps total cuts by year-end.

Risks ahead

Tariff inflation yet to fully hit data.

Jobs could deteriorate further.

The Fed’s dual mandate, price stability and maximum employment, was written into law only in 1977. Before that, the central bank had no formal employment goal.

For investors, the ‘how’ matters more than the ‘what.’ The Fed’s September 2025 cut will move stocks, bonds, the dollar, and gold. Here’s the market playbook for each outcome.

Base case (25 bps cut + cautious tone)

Dollar: Softens slightly.

Equities: Mild relief rally.

Bonds: Front-end yields down.

Gold/Bitcoin: Supported.

Surprise 50 bps cut

Signals deeper labour worries. Dollar falls sharply, equities spike but fade on recession fear.

Hold (no cut)

Markets shocked. Dollar surges, equities slump, yields rise.

Powell can’t fix both problems at once.

The labour side

Nonfarm payrolls plunged to an average of 29,000 by August.

Jobless claims are rising, showing cracks in employment.

The inflation side

CPI has stayed above 2 percent since 2021.

Tariffs could keep costs higher for longer.

The tradeoff

Cutting helps jobs but risks inflation. Holding steady protects inflation credibility but risks recession. Powell has to walk the narrowest of tightropes.

The US President has made no secret of his desire for cheaper money. He’s pressured Powell to resign, demanded ‘big cuts,’ and now reshaped the board with allies.

Miran’s arrival

Stephen Miran, Trump’s economic adviser, joined the Fed this week. His refusal to resign from his White House role raises alarms about conflicts of interest.

Cook’s fight

Fed Governor Lisa Cook remains in her seat after a court ruling blocked Trump’s bid to oust her. But the legal battle isn’t over, and the White House is pushing the case to the Supreme Court.

What does this mean?

Short-term policy may not shift dramatically. But longer-term, Trump’s influence could tilt the Fed toward more aggressive easing, challenging its institutional independence.

Trump is the first US president since Harry Truman in the 1950s to attack the Fed’s independence so openly. Truman clashed with the central bank during the Korean War over whether to maintain artificially low interest rates.

At 2:30 p.m. ET, the words will matter more than the numbers.

What Powell has to balance

Labour warnings: Powell recently called the jobs market a ‘curious balance’ with downside risks.

Tariff risks: Inflation is still sticky, but pass-through has been less than feared.

Politics: Expect pointed questions about Trump, Miran, and Cook.

Key phrases to track

‘Monitoring’ vs ‘assessing’ risks, a shift in wording can reset expectations.

How he frames tariffs: inflationary risk or manageable?

Whether he addresses Fed independence head-on.

Market impact

A cautious Powell could downplay further cuts, keeping the move as ‘one and done.’ A dovish Powell could signal the start of a cycle, pushing equities and gold higher.

The dot plot is part of the Fed’s Summary of Economic Projections. Each official marks their preferred policy rate at year-end for the next few years, plus a longer-run rate.

Why it matters

Markets treat the dots as a roadmap even though they’re not binding. If the median shows two cuts in 2025, investors will trade around that. If it shows three, risk assets could rally hard.

What to watch today

Do policymakers stick with two cuts as in June, or shift to three?

Where is the “longer-run” neutral rate? A move lower would signal deeper easing.

How wide is the distribution? Divergence shows policy uncertainty.

History lesson!

Dots often miss the mark. In 2019, the Fed cut far more than projections implied. But they remain the best window into policymakers’ mindset.

The Fed hasn’t cut rates in a year when unemployment was this low since the mid-1990s. This makes today’s decision historically unusual, highlighting how politics and tariffs are contorting the usual playbook.

Chair Jerome Powell faces a test not just of economic judgment but of leadership, whether he can hold the Fed together as dissent grows louder under political pressure from President Donald Trump.

“The institutional norms of collegiality are intense at the Fed,” Peter Conti-Brown told Politico, a Fed historian at Wharton. “This could be a cool and correct meeting without fireworks. But the big questions are: will we see dissents, and could we even get a three-way split?”

Why dissents matter now

Dissents aren’t new. What’s different this time is that pushback could come from both sides:

Trump-aligned voices like Stephen Miran may press for a larger cut.

Inflation hawks could argue the Fed shouldn’t cut at all, given tariffs are still pushing prices up.

Such a split would weaken the Fed’s consensus message, something Powell values because it signals clarity and stability to markets.

White House trade adviser Peter Navarro has openly claimed that Federal Reserve Chair Jerome Powell is 'gravitating' toward interest rate cuts after months of resisting President Donald Trump’s demands.

Speaking on NewsNation’s The Hill, Navarro said Powell was beginning to recognise the economic drag from Trump’s tariffs.

“Powell should see the tea leaves here… he’s grudgingly coming over to the idea that he shouldn’t be holding rates up because of tariffs,” Navarro argued.

Navarro went further, calling Powell a “lame duck,” pointing to growing dissent within the Federal Open Market Committee (FOMC).

The other force in this story is political, and personal. Trump has kept Powell in his crosshairs since the start of his second term, publicly blasting him for not cutting rates sooner.

Earlier this year, Trump threatened to fire Powell, then tried to use the Fed’s $2.5 billion headquarters renovation project as a wedge. He has now turned his fire on Fed governor Lisa Cook, accusing her of mortgage fraud, a case still in litigation. Meanwhile, Trump loyalist and newly confirmed governor Miran was fast-tracked onto the Fed’s board just in time for this meeting.

Inflation has been hovering near 3 percent, pushed higher in part by Trump’s sweeping tariffs. But Fed officials are increasingly confident the price spike is temporary.

San Francisco Fed chief Mary Daly, as cited by CNN, brushed it off as a ‘one-off.’ St. Louis Fed president Alberto Musalem said the effects will fade in two to three quarters. Even Waller, once hawkish on inflation, argued that “with inflation expectations anchored,” the tariff bump will dissipate by early 2026.

This matters because businesses don’t have the same pricing power they enjoyed during the pandemic stimulus era. With wallets thinner and job security shakier, households aren’t as willing to swallow higher costs.

For months, Jerome Powell resisted Donald Trump’s relentless demands to slash rates. But the numbers finally caught up with him. Job creation over the summer nearly flatlined: employers added just 29,000 jobs on average in the three months ending August. That’s barely above July’s pace, the weakest stretch since 2010 outside of the pandemic shock.

The pressure doesn’t stop there. More people are now out of work than there are job openings. Jobless claims in early September spiked to their highest in nearly four years. Long-term unemployment, people sidelined for more than six months, hit its worst level since late 2021. And a recent Labor Department revision quietly confirmed what many economists suspected: the jobs picture heading into summer was even weaker than reported.

Powell himself laid the groundwork in an August speech, warning that “downside risks to employment are rising.” Fed governors Christopher Waller and Michelle Bowman, both Trump appointees, were the first to openly call for a cut back in July. By September, the entire institution had to face reality.

The European Central Bank isn’t in play this week, but its policymakers will dominate a conference in Frankfurt. President Christine Lagarde will also meet eurozone finance ministers.

Data releases are plentiful: German investor confidence, eurozone industrial production, and Italy’s Fitch rating review are all highlights. Meanwhile, Switzerland’s export figures could carry weight as Bern negotiates to ease steep US tariffs.

Asia’s week began with a flood of Chinese data, retail sales, investment, jobs, to gauge if stimulus is working after a summer slowdown. Property metrics are also under the microscope.

In India, August trade data showed a likely narrowing deficit, while Pakistan is expected to keep rates unchanged. Japan’s CPI, New Zealand GDP, and Australia’s jobs report are also on the radar for regional policy outlooks.

In the Global South, most central banks are holding steady:

·         Indonesia: Expected to pause after two back-to-back cuts, as political unrest adds to uncertainty.

·         Brazil: All but certain to keep borrowing costs at a 19-year high of 15 percent, with easing unlikely before 2026 despite cooling inflation.

·         South Africa: Poised to hold at 7 percent, wary of inflation ticking up again.

·         Angola and Ghana: Likely to trim rates slightly as disinflation gains traction.

Meanwhile, Israel’s inflation may dip back inside target for the first time in over a year, opening the door for rate cuts later in September.

Friday belongs to the Bank of Japan, which continues its cautious path away from ultra-loose policy. Inflation is running hot, growth is holding up, but Governor Kazuo Ueda has signalled no rush. Markets expect rates to stay unchanged, though traders will dissect his comments for any hint of hikes ahead.

The Bank of England meets Thursday, and consensus points to no change after August’s surprise cut. Inflation data shows the UK stuck at 3.8 percent, with services inflation still stubborn.

But all eyes will be on the BOE’s plan to slow quantitative tightening, currently at £100 billion a year, after recent market turmoil. Governor Andrew Bailey faces another fractured committee, with some members still pushing for deeper cuts.

Before Powell takes the stage, the Bank of Canada is widely tipped to cut its policy rate to 2.5 percent. Inflation there has softened to near 2 percent, but jobs data has turned grim and the economy contracted last quarter. So far, easier money hasn’t revived Canada’s housing market, leaving investors eager for fresh clues in upcoming sales and starts data.

In Norway, the call is trickier. Norges Bank signalled a quarter-point cut in June, but with core inflation stuck above 3 percent and corporate sentiment steady, policymakers may delay. A split vote is on the cards.

From Ottawa to Tokyo, it’s a week when central bankers call the shots. By Friday, borrowing costs affecting nearly two-fifths of the global economy will have been either cut, reaffirmed, or teed up for future action.

The sequence runs like clockwork: Bank of Canada and the Fed on Wednesday, Bank of England on Thursday, and Bank of Japan closing the week Friday. Add in decisions from Norway, Indonesia, Brazil and South Africa, and this ‘central bank superweek’ is likely to ripple through currencies, bond yields, and equities worldwide.

Powell will face a tough balancing act at his press conference:

·         Reassure markets the Fed is acting decisively to support jobs.

·         Convince skeptics that inflation risks remain under control.

·         Address growing concerns over whether the Fed can truly operate free from political influence.

Economists surveyed by Bloomberg largely expect the Fed to pencil in two rate cuts for 2025, in line with June’s projections. That would imply one more cut after today, either in October or December.

But a sizable minority, over 40 percent of economists, expect officials to mark down three cuts this year, signaling a more aggressive easing path.

The dot plot will reveal not just 2025’s outlook but also how policymakers see inflation and unemployment evolving into 2026.

The pullback wasn’t limited to gold. Silver, platinum, and palladium all dropped more than 1.5 percent, while the Bloomberg Dollar Spot Index held steady after Tuesday’s 0.5 percent fall.

Gold’s surge this year has been powered by multiple forces:

·         A weaker US dollar, which has shed nearly 10 percent against major currencies, making gold cheaper for global buyers.

·         Geopolitical risks and concerns about the fallout from US tariffs, fuelling safe-haven demand.

·         Aggressive central bank buying, especially from emerging markets.

·         Investor rotation away from treasuries, with Goldman Sachs projecting that even a modest shift could push gold close to $5,000 an ounce.

So far in 2025, bullion has gained more than 40 percent, making it one of the year’s standout assets.

Lower interest rates are typically bullish for gold, which doesn’t yield income but gains appeal when borrowing costs drop. Swap traders are already pricing in two more cuts before year-end, though a stronger-than-expected US retail sales print on Tuesday barely moved those expectations.

The “dot plot”, which charts policymakers’ projections for rates, will be closely parsed for clues on the Fed’s trajectory beyond September.

Gold pulled back from its all-time high on Wednesday as global markets stayed muted in the countdown to the Federal Reserve’s policy decision.

Spot bullion traded at $3,666.31 an ounce by 11:17 a.m. in London, about $40 below Tuesday’s record high of $3,703.07. Traders widely expect a quarter-point rate cut, with attention now on Fed Chair Jerome Powell’s press conference and updated economic projections.

US stock futures traded cautiously on Wednesday ahead of the Federal Reserve’s policy decision, with markets widely expecting the first US interest rate cut of 2025.

Dow Jones Industrial Average and S&P 500 futures hovered near the flatline, while contracts tied to the tech-heavy Nasdaq 100 also showed little movement. This comes after all three major indexes ended Tuesday’s session virtually unchanged.

Ashwini Shami, co-founder and portfolio manager at OmniScience Capital believes the anticipated US Federal Reserve rate cut could be the real catalyst for foreign institutional investor (FII) inflows.

·         A Fed pivot would ease global liquidity conditions and draw capital back to emerging markets like India.

·         Domestic institutional investors (DIIs) have already been strong buyers, cushioning the market from volatility.

·         If FII selling pauses, as was seen between March and June this year, Shami expects Indian equities to find renewed momentum.