Apostolos Paschalidis
Greece
3m
🏛️ What the Fed Did • On October 29, 2025, the Federal Reserve cut its target federal funds rate by 25 basis points, lowering the range to 3.75% – 4.00%. • This is the second consecutive rate cut in 2025. • The Fed also announced it will end its balance sheet runoff (i.e. stop shrinking its holdings) as of December 1, 2025. 🔍 Key Context & Statements • Economic activity was described as expanding at a moderate pace, though job gains have slowed recently; the labor market is showing signs of weakness. • Inflation pressures remain “somewhat elevated” — so while the Fed is easing, it is cautious about going too far too fast. • Powell (in the press conference) pushed back on market expectations for a December rate cut, saying it is not a foregone conclusion. • Given uncertainties (such as the ongoing government shutdown) and gaps in economic data, the Fed emphasized being data dependent for future decisions. 📈 1. Stock Market Reaction • Immediate reaction: The S&P 500 rose about +1.3% on the day of the decision, while the Nasdaq 100 jumped +1.8%. Investors welcomed the smaller-than-expected cut as a “soft-landing” signal, suggesting the Fed sees inflation easing without a deep slowdown. • Sector winners: ◦ Real estate, utilities, and consumer discretionary led gains (rate-sensitive sectors). ◦ Financials were mixed — lower rates narrow banks’ lending margins but boost credit demand and lower default risk. ◦ Tech and AI-related stocks extended their momentum, as cheaper money supports long-duration growth assets. • Volatility: The VIX (volatility index) dropped below 14, signaling calmer sentiment and relief that the Fed’s tone was dovish but not panicky. 💵 2. Bond Market Reaction • Treasury yields fell sharply: ◦ The 2-year yield dropped about 12 basis points (to ~4.02%). ◦ The 10-year yield eased to ~3.82%. This flattening reflected investor expectations of further rate cuts in 2026. (Bloomberg, Oct 30 2025) • Credit spreads (corporate bonds vs. Treasuries) tightened slightly, suggesting improved risk appetite. 💱 3. Currency Markets • The U.S. Dollar Index (DXY) fell roughly 0.6% as traders priced in a less aggressive Fed going forward. • Emerging-market currencies (like MXN, BRL, ZAR) strengthened modestly due to improved global risk sentiment. • The euro and yen gained slightly against the dollar, but moves were contained since both regions are also easing. 🛢️ 4. Commodities & Crypto • Gold climbed ~1.2% to $2,480/oz, benefiting from lower real yields and a softer dollar. • Oil prices were flat — the decision didn’t materially change global demand expectations. • Bitcoin gained ~3% in the following 24 hours, echoing broader risk-on behavior and expectations of more liquidity. 🧭 5. Market Narrative / Interpretation • Investors saw the 25 bps cut as “insurance,” not panic — a sign that the Fed is managing a gentle deceleration in the economy. • Futures markets (CME FedWatch) moved to price another 25 bps cut by March 2026 with ≈ 70% probability. • Analysts described it as a “Goldilocks” moment: inflation cooling, growth slowing but still positive, and policy turning supportive.
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