Fed Cuts Interest Rates to Lowest Level in Three Years
The Federal Reserve delivered its second Fed rate cut of 2025 on October 29, lowering benchmark interest rates by 25 basis points to a range of 3.75%-4%. This marks the lowest interest rate level in three years, signaling the central bank’s commitment to supporting the weakening labor market.
Market Reaction to Fed Rate Cut
Global stock markets responded positively to the Fed rate cut announcement. The Nasdaq Composite surged to record highs, gaining 0.5%, while the S&P 500 showed mixed results. Indian markets also positioned for gains, with Gift Nifty futures indicating a positive opening.
Fed rate cut decisions typically boost emerging markets like India by making them more attractive to foreign investors. Lower US interest rates reduce borrowing costs across the economy, benefiting sectors from technology to real estate.
Powell’s Cautious Stance on Future Fed Rate Cut
Fed Chair Jerome Powell tempered enthusiasm by stating that a December Fed rate cut is “not a foregone conclusion”. This cautious commentary reflects uncertainty due to the ongoing government shutdown, which has limited economic data availability.
The Fed rate cut came despite inflation remaining at 3%, above the central bank’s 2% target. However, policymakers prioritized employment concerns over inflation risks, acknowledging downside risks to the labor market.
Impact of Fed Rate Cut on Investments
The Fed rate cut affects various investment vehicles. Lower rates reduce returns on savings accounts and CDs while decreasing borrowing costs for mortgages and loans. The Fed rate cut also weakens the US dollar, potentially benefiting commodity prices and emerging market currencies.
DISCLAIMER
Disclaimer: This article is for educational purposes only and should not be considered financial advice. The information provided is based on current market conditions as of October 30, 2025. Stock market investments are subject to market risks. Please consult with a qualified financial advisor before making any investment decisions. Past performance does not guarantee future results.