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Fed lowered interest rates; markets react mixed
The Federal Reserve decided to lower its interest rates by 25 basis points. The central bank’s economic estimates showed improvements in expected economic growth, while employment and inflation estimates for the end of 2025 remained unchanged. Stock markets in the US reacted mixed, while the Dollar Index closed up 0.4%.
The Fed lowered interest rates by 25 basis points but refrained from signaling additional cuts, citing ongoing economic uncertainty.
Stock markets in the US reacted mixed to the Fed’s tone. Further cuts are anticipated, but uncertainty about employment and inflation remains.
US crude oil inventories came in sharply below estimates, while prices swung amid uncertainty.
Exports and imports in Japan showed contraction, as the investing public awaits the BoJ’s monetary policy decision.
Fed lowers interest rates while awaiting data
The Federal Reserve began its cutting cycle today. The central bank lowered its benchmark interest rates by 25 bps, as expected by the consensus of analysts. The update of economic estimates showed an improvement in expected GDP (1.6% vs 1.4% for end-2025), while unemployment and PCE remained unchanged at 4.5% and 3.0%, respectively (for end-2025). For 2026, GDP growth of 1.8% is expected, an unemployment rate of 4.4% (an improvement in the estimate), while the PCE was adjusted to 2.6% (previously 2.4%).
The reference rate stood at 4.25%. In turn, the FOMC adjusted its rate forecast from 3.9% to 3.6%. The probability measured by CME Group’s FedWatch currently implies two more cuts at the October and November meetings.
Chair Jerome Powell commented that the FOMC will maintain its “meeting by meeting” approach because, unlike other cyclical episodes, there is presently weakness in employment and a risk of a rebound in inflation. During the press conference, he was questioned about the independence of the central bank, to which he replied that the institution is completely independent and should not be considered a political risk.
US stock markets mixed; dollar rises
The main stock indices reacted mixed to the Fed’s decision. The S&P 500 and Nasdaq 100 declined 0.10% and 0.21%, respectively. In contrast, the Dow Jones rose 0.57%, while the Russell 2000 gained 0.18%. The VIX volatility index decreased by approximately 4%. In turn, the Dollar Index increased by 0.40% at the close of the market. Regarding gold, the precious metal depreciated 0.80% due to the strength of the dollar. Meanwhile, US Treasury yields rose by about 1.49%.
While news of monetary easing is supportive for risk assets, the central bank’s tone conveyed uncertainty to the investing public. The dual risk of weakening employment alongside a potential inflation rebound may have raised the risk premium across markets.
BoC continues its cutting cycle
The Bank of Canada lowered its benchmark interest rates by 25 bps, as expected by the consensus of analysts. The benchmark rate stood at 2.5%, which implies a decrease of 50% from the peak in May 2024, when the rate was 5%. The Canadian dollar depreciated 0.21% against the US dollar.
Crude oil inventories surprise to the downside
The Energy Information Administration (EIA) reported a surprise drop of 9.3 million barrels in US crude oil inventories, while the consensus of analysts expected a decrease of 1.5 million barrels. Although the fall in inventories could be related to an unexpected increase in crude demand, the WTI benchmark showed a decrease of 0.69%, keeping prices close to structural support at $63 per barrel.
Imports in Japan contract more than expected
Japanese exports fell in August for the fourth consecutive month by 0.10%, affected by US tariffs. This dynamic has pressured profit margins for Japanese companies and complicated the manufacturing recovery. However, corporate investment remains relatively resilient.
Meanwhile, imports showed a contraction above what analysts expected. The year-on-year change was −5.2%, while the consensus expected −4.2%. In both cases, the data reflect deterioration in Japan’s foreign trade, which has become more evident since the implementation of tariffs by US President Donald Trump.
