U.S. stock futures edged higher Thursday after the Federal Reserve implemented its first interest rate cut since December, a move that had been widely anticipated. Chair Jerome Powell emphasized the importance of cautious risk management, pointing to a softening labor market as a key concern. Market observers expect additional rate reductions later this year, although Fed projections suggest debate over the timing and scale of such cuts could be intense. Investors are also looking ahead to the Bank of England’s upcoming rate announcement, while gold prices pulled back from recent all-time highs.
Markets react
By 03:00 ET, Dow futures were up 141 points, or 0.3%, S&P 500 futures rose 28 points, or 0.4%, and Nasdaq 100 futures gained 149 points, or 0.6%, as traders digested both the Fed’s policy move and Powell’s commentary.
On Wednesday, Wall Street closed mixed: the Dow Jones Industrial Average rose, while the S&P 500 and Nasdaq Composite retreated. Shares of Nvidia (NASDAQ:NVDA) influenced sentiment after reports indicated China’s internet regulator barred large domestic tech firms from buying the company’s AI-optimized chips.
Fed reduces rates
The Fed lowered interest rates by a quarter point to a target range of 4%–4.25%, signaling two more possible cuts in October and December. Powell described the move as a “risk management” step, intended to navigate the pressures of a weakening labor market while balancing persistent inflation.
He noted that recent soft employment data heavily influenced the committee, stating that “downside risks to employment have risen.” Rising inflation, on the other hand, was seen as a temporary challenge. Reduced rates generally encourage investment and hiring, although they can also heighten inflationary pressures.
The rate cut was not fully unanimous: Stephen Miran advocated a deeper 50-basis point reduction. Miran, appointed to the FOMC by President Donald Trump shortly before the Fed meeting, has previously called for more aggressive easing. Powell emphasized the Fed’s independence, noting that it is “deeply in our culture to do our work based on the incoming data and never consider anything else.”
Projections spark debate
Updated Fed projections indicate officials anticipate another 0.5% in rate cuts by year-end, which would bring borrowing costs to 3.5%–3.75%. However, seven of 19 projections show fewer reductions, with one suggesting rates remain at 4.25%–4.5%. Analysts at Barclays highlighted that one projection, believed to be Miran’s, expected rates to drop sharply to 2.75%–3%, “in line with calls by the Trump administration to rapidly lower interest rates.”
Markets now see roughly a 90% probability of a 25-basis point reduction in October and about an 84% chance of a similar cut in December, per CME FedWatch. Projections also show expectations of 1.6% economic growth for 2025, a year-end unemployment rate of 4.5%, and underlying inflation of 3.1%, with price growth not expected to return to the Fed’s 2% target until 2028.
Focus shifts to BoE and BoJ
Investors are now awaiting the Bank of England’s rate decision. Unlike the Fed, the BoE is expected to hold rates at 4% after last month’s cut—the fifth since August 2024. August inflation reached 3.8%, nearly double the BoE’s 2% target, likely prompting policymakers to pause while monitoring labor market conditions.
The Bank of Japan, meeting Friday, is expected to leave rates unchanged amid political uncertainty.
Gold slides
Gold prices continued their decline in European trading, easing from record highs as the U.S. dollar strengthened. Analysts noted the Fed’s cautious approach to further easing, projecting two cuts this year and only one in 2026. Powell highlighted that decisions will be made on a meeting-by-meeting basis, suggesting an aggressive rate-cutting cycle is unlikely.
Analysts at ING commented: “They think three more cuts will be enough to boost growth and prompt a revival in the jobs market, but the market is sceptical.”
Gold’s record surge in recent weeks has been fueled by monetary easing expectations, geopolitical uncertainty, and central bank purchases, which reduce the opportunity cost of holding non-yielding bullion.
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