The US stock market held steady near its all-time high on Wednesday following the Federal Reserve’s decision to cut its main interest rate. This move, aimed at bolstering the job market, was widely anticipated by Wall Street. The S&P 500 rose by 0.1%, inching closer to its record set in October. Meanwhile, the Dow Jones Industrial Average climbed 248 points, or 0.5%, as of 2:05 p.m. Eastern time, while the Nasdaq composite saw a slight dip of 0.2%.
In Australia, the sharemarket is set to advance, with futures at 6:20 a.m. AEST indicating a rise of 49 points, or 0.5%, at the open. The ASX experienced a minor dip of less than 0.1% on Wednesday. The Australian dollar was trading at US66.63¢ at 7 a.m. AEDT, with the latest unemployment data expected at 11:30 a.m. AEDT.
Investors are closely monitoring Fed Chair Jerome Powell’s press conference, which commenced at 6:30 a.m. AEDT. Wall Street typically favors lower interest rates as they can stimulate the economy and increase investment prices, despite the potential to exacerbate inflation. The market’s modest reaction to Wednesday’s cut reflects the fact that stock prices had already surged in anticipation of this move.
Fed’s Future Rate Cuts Under Scrutiny
The key question now is how many more rate cuts the Fed might implement in 2026 to support a slowing job market. After voting on Wednesday’s quarter-percentage-point cut, Fed officials released projections for the federal funds rate at the end of 2026. The median projection suggests one more cut by the end of next year, consistent with forecasts from three months prior.
This projection is under intense scrutiny, as Fed officials appear divided on the necessity of further economic support through lower interest rates. With inflation persistently above the Fed’s 2% target, some officials argue that inflation poses a greater threat to the economy than the job market.
In the latest vote, two Fed officials opposed the quarter-percentage-point cut, arguing that a rate reduction was unnecessary. Conversely, another official voted against the cut, advocating for a more substantial half-percentage-point reduction.
Market Reactions and Economic Indicators
In the bond market, shorter-term Treasury yields eased slightly, indicating that investors are leaning towards the possibility of more rate cuts than previously anticipated. Among the notable market movers was GE Vernova, which soared 15.6% after the energy company raised its revenue forecast for 2028, doubled its dividend, and expanded its stock buyback program. Palantir Technologies also gained 4.4% following news that the US Navy will utilize its AI technology as part of a $US448 million program.
Conversely, GameStop fell 3.3% after reporting weaker-than-expected revenue for the latest quarter, despite exceeding profit forecasts. Cracker Barrel Old Country Store experienced a 3.8% rise after fluctuating between gains and losses. The restaurant chain, embroiled in controversy over its logo design, reported better-than-expected quarterly results but reduced its revenue forecast for the fiscal year and an underlying earnings measure.
Inflation vs. Job Market: A Delicate Balance
While lower interest rates can stimulate the economy and boost investment prices, they also risk exacerbating inflation. With inflation stubbornly above the Fed’s 2% target, officials are notably divided on whether high inflation or a slowing job market poses a greater economic threat.
In the bond market, the yield on the 10-year Treasury edged down to 4.16% from 4.18% late on Tuesday. The two-year yield, which more closely aligns with Fed expectations, dipped to 3.59% from 3.61%.
The announcement comes as global markets remain sensitive to central bank policies, with investors keenly watching for signals on future rate adjustments. The Fed’s decisions will likely continue to influence market dynamics and economic forecasts in the coming months.
