Global equity markets rallied following a 25-basis-point rate cut by the US Federal Reserve, though analysts caution that future Fed moves remain uncertain.Treasury yieldsfell, the dollar softened, equities rose, and gold gained.
Mixed Signals from the Fed
Mitul Kotecha, from Barclays in an interview to ET Now noted the Fed’s divided stance: “The vote was very split. Some members didn’t even vote for a cut. The dot plot shows only one cut next year, though we think there’s a chance for two. Markets reacted positively—Treasury yields were lower, the dollar softer, equities higher, and gold rallied. Powell’s comments suggest the Fed will remain data dependent.”
Liquidity Injection Boosts Sentiment
The Fed also announced a $40 billion monthly Treasury bill purchase to manage year-end liquidity pressures. “It is a positive surprise. This will help funding pressures and support market sentiment. It’s not QE, just liquidity management, but markets have reacted well.”
Looking Ahead
Analysts are watching the potential new Fed chair and U.S. debt dynamics: “After 50 basis points of cuts, we expect rates to settle at the terminal rate. A new governor may influence policy, but the Fed board still votes collectively. We aren’t worried about debt dynamics; 10-year yields should settle around 4%, and fiscal pressures appear manageable,” he said.
Investors will closely monitor the Fed’s data-driven approach and liquidity measures as the outlook for interest rates unfolds through 2026.
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