[New York Stock Exchange] US Fed Ends Mixed Despite First Rate Cut of the Year... Powell's Remarks Weigh on Market

Fed Lowers Benchmark Rate to 4.0?4.25%
Powell Stresses "Risk Management Cut"
Outlook for Two More Cuts This Year... Sharp Divisions Among Committee Members
Wall Street: "Still Far from a Full Policy Pivot"

The three major indices on the New York Stock Exchange closed mixed on September 17 (local time). Although the US Federal Reserve (Fed) resumed its rate cuts, analysts noted that it is difficult to conclude that this marks the start of a full-fledged monetary easing cycle, resulting in insufficient momentum to drive a market rally. Investors focused on comments by Fed Chair Jerome Powell, who described the decision as a "risk management measure," as well as the diverging views among Federal Open Market Committee (FOMC) members regarding the future path of interest rates.

On this day, the Dow Jones Industrial Average, which is centered on blue-chip stocks, closed at 46,018.32, up 260.42 points (0.57%) from the previous session. The S&P 500 Index, focused on large-cap stocks, fell by 6.41 points (0.1%) to 6,600.35, while the Nasdaq Composite Index, which is centered on technology stocks, dropped by 72.633 points (0.33%) to close at 22,261.326.

During its regular FOMC meeting, the Fed decided to lower the federal funds rate by 0.25 percentage points to a range of 4.0% to 4.25% per annum. This move came after maintaining a freeze for nine months following a rate cut in December last year. In its policy statement, the Fed described economic activity as having moderated and newly added the phrase "job growth has slowed." The recent weakness in employment indicators appears to have been a key factor behind the rate cut.

The Fed also indicated the possibility of two additional rate cuts this year through its dot plot, which outlines interest rate projections. This suggests that rates could be cut by 0.25 percentage points each at the remaining meetings in October and December. This is one more cut than was projected in the dot plot released in June. For 2026 and 2027, one rate cut of 0.25 percentage points each year is expected.

However, Chair Powell characterized this rate cut as a "risk management measure," which dampened investor expectations to some extent. He stated, "In some ways, this can be seen as a risk management cut," adding, "There is no risk-free path right now. It is not even clear what we should do." These remarks were interpreted as indicating that the rate cut serves primarily as an insurance policy against a potential recession. As a result, there are still doubts as to whether the Fed will proceed with consecutive rate cuts.

On the other hand, Powell’s assessment that tariff-driven inflation has been more limited than expected provided some relief. He explained, "Inflation has risen and remains somewhat high," but added, "The impact passed on to consumers has been very small. The pace and extent of pass-through have been slower and smaller than we anticipated." However, he also noted that if companies accelerate the pace of passing on costs, inflationary pressures could intensify.

Daniel Siluk, Global Head of Short Duration & Liquidity and Portfolio Manager at Janus Henderson Investors, commented, "The dot plot suggested two more cuts this year, but Chair Powell downplayed its significance, saying the outlook is 'more balanced' rather than decisively tilted by labor market risks. While the market may welcome an easing stance, this message remains subtle and is still far from a full pivot in policy."

In reality, while the Fed’s dot plot pointed to two more rate cuts this year, there were significant differences among committee members. Of the 19 FOMC members, seven believed no further cuts were needed this year. Two supported one more cut (0.25 percentage points), and nine favored two more cuts (0.5 percentage points). One member, presumed to be Director Myron, advocated for a total of 1.25 percentage points in additional cuts this year. With such divergent views, intense debate over the future path of interest rates is expected.

The US dollar is strengthening. The dollar index, which measures the value of the US dollar against the currencies of six major countries, is up 0.4% from the previous day, standing at 96.63.

Yields on US Treasury bonds are rising. The yield on the benchmark 10-year US Treasury note is up 6 basis points from the previous day to 4.08%, while the yield on the 2-year Treasury note, which is sensitive to monetary policy, is up 4 basis points to 3.55%.

By sector, technology stocks were generally weak. Nvidia fell 2.62% following reports that the Chinese government had banned domestic companies from purchasing Nvidia chips. Oracle declined by 1.69%, while Palantir and Broadcom dropped by 1.13% and 3.84%, respectively. In contrast, Walmart rose by 0.82%. JPMorgan and American Express jumped by 0.83% and 2.73%, respectively. The Russell 2000 Index, which is composed mainly of small and mid-cap stocks, gained 0.18% on expectations of benefiting from the rate cut.