Global financial markets responded strongly to the U.S. Federal Reserve’s decision to cut interest rates by 25 basis points, a move that had been widely anticipated. The benchmark federal funds rate now stands in the range of 4.75% to 5.00%, marking the first reduction since the central bank began its tightening cycle in 2022.
Wall Street closed higher following the announcement, with the S&P 500 rising 1.2%, the Dow Jones Industrial Average gaining 0.9%, and the Nasdaq Composite adding 1.6%. Investors welcomed the cut as a signal that the Fed is prioritizing growth amid signs of cooling inflation and a slowdown in the U.S. labor market.
Asian and European markets followed suit. Japan’s Nikkei 225 advanced 1.4%, Hong Kong’s Hang Seng climbed 1.7%, and South Korea’s Kospi gained 1.2%. In Europe, the FTSE 100 rose 0.8%, while Germany’s DAX index gained 1.1%. Emerging markets also saw an uptick in investor sentiment, with India’s Sensex and Brazil’s Bovespa posting notable gains.
Currency markets reflected the shift in U.S. monetary policy, with the dollar weakening against most major currencies. The euro appreciated to $1.11, while the yen strengthened to 143 per dollar. The softer dollar supported gains in commodity markets, particularly gold, which rose to $2,420 per ounce, and oil, with Brent crude climbing above $86 per barrel.
While the Fed’s move was widely anticipated, analysts have raised concerns about its potential inflationary effects. A rate cut reduces borrowing costs, spurs consumer spending, and can boost investment, but it also carries the risk of reigniting price pressures. U.S. inflation has eased from its peak above 9% in 2022 to 3.2% in August, but remains above the Fed’s 2% target.
Federal Reserve Chair Jerome Powell, in his press conference, emphasized that the cut was a “calibrated adjustment” rather than the beginning of a large easing cycle. He noted that while inflation is trending downward, risks remain, particularly from energy markets and supply chain disruptions. Powell added that the Fed would continue to monitor incoming data closely and adjust policy as necessary.
The decision also carries significant implications for global central banks. Some, like the European Central Bank and the Bank of England, are weighing their own rate paths amid mixed signals on inflation and growth. Emerging market central banks, many of which raised rates aggressively in recent years, may find additional space to cut as U.S. monetary tightening recedes.
In the bond market, yields on U.S. Treasuries fell sharply, with the 10-year yield dropping to 3.85% from 4.05% prior to the announcement. Lower yields reflect increased demand for government debt and signal expectations of looser financial conditions ahead.