Fed meeting recap: Fed's starts stealth easing, Powell rules out hike and markets rally

The Federal Reserve's rate cut wasn't the only decision it made on Wednesday. The central bank will once again begin buying Treasury securities. In October, the Fed said it would halt its balance sheet runoff to provide more liquidity to markets and economy. However, it will resume buying $40 billion in Treasury bills on Friday. Some see this move as a stealth way to lower rates.

"Today's move was the ultimate compromise because Treasury bill purchases are coming sooner than expected, but the dot-plot showed few rate cuts next year," said David Russell, global heald of market strategy at TradeStation.

"Powell threaded the needle again at a time when the Fed is dealing with major pressures. This gives policymakers time to get caught up on the economic data after the shutdown. It makes January a more important meeting, but it still gives investors some holiday cheer," he said.

—Christina Cheddar Berk

Powell said he's intent on handing the reins to his successor with the economy on solid footing.

"I really want to turn this job over to whoever replaces me in with the economy in really good shape," Powell said. "I want inflation to be under control, coming back down to 2% and I want the labor market to be strong. That's what I want. And all my efforts are to get to that place."

President Donald Trump will begin the final interviews of candidates for the Fed chair this week, beginning with Fed Governor Kevin Warsh Wednesday, and will include Kevin Hassett, the director of the National Economic Council, at some point.

— Yun Li

The Federal Reserve is the most divided it has been in more than six years now that three members have dissented from its rate-cut vote.

Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid both voted for no decrease, while Federal Reserve Governor Stephen Miran called for a half-point cut.

The last time there were three dissents during a central bank's meeting was in September 2019.

— Michelle Fox

Correction: An earlier version of this post misstated the date.

Fed Chair Jerome Powell listed President Donald Trump's broad and steep levies as a driver of inflation.

"It's really tariffs that's causing most of the inflation overshoot," Powell said.

But Powell said the tariffs will likely create a "one-time" increase to prices.

"Our job is to make sure that it is," Powell said.

— Alex Harring

Fed Chair Jerome Powell said he doesn't expect anyone's main expectation to be an interest rate increase going forward.

"I don't think that a rate hike ... is anybody's base case at this point," Powell said. "I'm not hearing that."

Powell's comment comes after the Fed announced its third rate cut of the year. But market participants have been worried that he would strike a hawkish tone suggesting it could be the central bank's last decrease in the near future.

— Alex Harring

The Federal Reserve is in a wait-and-see mode as it decides future monetary policy decisions.

"We'll carefully evaluate that incoming data, and also, I would note that having reduced our policy rate by 75 basis points since September and 175 basis points since last September, Fed funds rate is now within a broad range of estimates of its neutral value and we are well positioned to wait and see how the economy evolves," Fed Chair Jerome Powell said during his post-meeting news conference.

Powell said that the central bank is "well positioned to determine the extent and timing of additional adjustments based on the incoming data, the evolving outlook of the balance of risks."

— Pia Singh

Powell said Wednesday's decision to cut rates was anything but straightforward.

"I could make a case for either side. ... It's a close call," Powell said. "We always hope that the data will give us a clear read. ... It's a very challenging situation. I think we're in a good place to, as I mentioned, to wait and see how the economy evolves."

— Yun Li

While there was some dissent on Wednesday's interest rate decision, Fed Chair Jerome Powell said there's broad consensus around the threats to both sides of the central bank's dual mandate.

"A very large number of participants agree that risks are to the upside for unemployment and to the upside for inflation," Powell said.

Powell called it a "very challenging situation." However, he said the Fed should be able "to wait and see how the economy evolves."

— Alex Harring

As Fed Chair Jerome Powell fielded questions from reporters, the Dow Jones Industrial Average continued to rise.

The blue-chip index traded up 424.79 points, or 0.9%. The S&P 500 gained 0.5%, while the Nasdaq Composite added less than 0.1%.

Read more about the market reaction here.

—Christina Cheddar Berk

Powell said inflation has remained "somewhat elevated" due to the impact from tariffs.

"These readings are higher than earlier in the year, as inflation for goods has picked up, reflecting the effects of tariffs," he said, citing the rise in PCE and core PCE.

Powell said there is no risk-free path for policy as the central bank navigates the tension between its employment and inflation goals.

"A reasonable base case is that the effects of tariffs on inflation will be relatively short lived, effectively a one time shift in the price level," he said. "Our obligation is to make sure that a one-time increase in the price level does not become an ongoing inflation problem, but with downside risks to employment having risen in recent months, the balance of risks has shifted. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate."

— Yun Li

The Federal Reserve is predicting just one rate cut in 2026, unchanged from its forecast three months ago. However, the market is suggesting a different outcome.

Traders have increased their bets that the central bank will go lower with rates. Fed funds futures suggest around a 68% chance the central bank will cut rates two or more times in the new year, according to the CME Fedwatch tool.

—Christina Cheddar Berk

The Federal Reserve showed interest in the unemployment rate and shared information about its reserve balances in its statement. Click here to see what changed.

— Alex Harring

One surprise from the Fed announcement: The central bank said it will once again buy Treasury securities. Specifically, the Fed will start buying $40 billion in Treasury bills on Friday. Purchases from there are expected to "remain elevated for a few months" before they are "significantly reduced."

— Fred Imbert

Although the federal funds rate, set by the Federal Open Market Committee, is the interest rate at which banks borrow and lend to one another overnight and not the rate that consumers pay, the Fed's actions still influence all sorts of consumer products.

Many shorter-term rates are closely pegged to the prime rate, which is typically 3 percentage points higher than the federal funds rate. With a rate cut, the prime rate comes down and the interest rate that short-term debt, notably credit cards, should follow within a billing cycle or two.

On the other hand, longer-term rates are also influenced by other economic factors. Both 15- and 30-year mortgage rates, for example, are more closely tied to Treasury yields and those continue to climb amid worries about persistent inflation.

From car loans to student debt and savings accounts, here's a look at all of the other ways the Fed decision could affect your finances.

— Jessica Dickler

The rate-setting Federal Open Market Committee has decided to cut its overnight lending rate by a quarter percentage point, or 25 basis points, to a targeted range of 3.5% to 3.75%. This is its third straight reduction.

The vote was 9-3.

—Christina Cheddar Berk

While risk and interest-rate sensitive assets generally have had positive returns on Federal Open Market Committee meeting days, that has shifted this year, Citi said in a note Tuesday.

"We see that, in the median case, equities typically rally following the FOMC decision and especially into the FOMC press conference, but the rally is typically unwound by the close," wrote Alex Saunders, the firm's head of global quant macro strategy.

— Michelle Fox

At the conclusion of its final meeting in 2025, the Federal Reserve will release a forecast of future financial conditions. The so-called dot-plot foreshadows where rates might be heading.

—Christina Cheddar Berk

Bank of America is breaking from the broader market consensus, arguing that the Fed's 2026 "dot" is likely to fall enough to signal two rate cuts next year.

The firm expects the median projection to slip to 3.0%–3.25%, noting that it was already just one forecast away from that outcome in September. Back then, the central bank's so-called dot plot indicated a median estimate of 3.4% for the federal funds rate at the end of 2026.

Since then, both labor-market and inflation data have come in a bit softer than anticipated, strengthening the case for additional easing, the bank said.

BofA also points out that seven of the 19 Fed officials were projecting no more than one cut for 2025 at the September meeting, and yet the Fed is now set to deliver a third.

"This should lead to a downward level-shift in at least a few of those policymakers' 2026 dots," the firm said in a note.

— Yun Li

Stocks could get a boost with the Fed set to cut rates here.

UBS noted that stocks "historically perform best when the Fed cuts in non-recession periods." Citing data since 1970, the S&P 500 averages a 15% annualized return when the economy is not in a recession and the Fed cuts rates.

"In our view, the macro environment will likely continue to be in the most favorable condition through the early part of next year, supporting the equity market's next leg up amid robust earnings," UBS wrote.

— Fred Imbert

The Fed is expected to cut its overnight benchmark rate. However, it'll likely be a "hawkish" one.

What does that mean? For JPMorgan traders, it entails two things:

• The so-called dotplot signals the Fed expects to cut only once next year.
• Chair Jerome Powell notes concerns about inflation remain and doesn't commit to lowering rates later on.

Read more here.

— Fred Imbert