On Wednesday, the Federal Reserve cut interest rates as widely expected. But in usual fashion, the Dow (DJI), Nasdaq (QQQ), and S&P 500 (IVV) fell sharply during Fed Chair Powell’s commentary.
Powell reminded markets that the 25 bps rate cut in December is hardly assured. Despite limited economic data, delayed by the Federal government shutdown, inflation is still higher than the 2% target. The employment situation improved, which weakens the call to lower rates in the Dec. meeting.
Bond markets reacted poorly to Powell’s comments. Treasury bond yields jumped. Still, the Federal Reserve plans to let mortgage-backed securities mature. It would reinvest the proceeds to buy treasury.
Weak Treasury Bond Demand
Although Powell did not mention it, the U.S. government debt of $38 trillion is a headwind. Debt increased by $2 trillion in only one fiscal year (Between 2024 – 2025). The FOMC’s t-bill buyback should have helped lift bond prices.
Let the bond market settle down for a few days before assessing its true reaction.
Stock markets ended Wednesday nearly flat. However, the Russell 2000 (IWM) is at risk of a leg down. Weak employment and high inflation, plus the pressures from tariffs, hurt small-cap companies.
On the day, Broadcom (AVGO), Nvidia (NVDA), and Alphabet (GOOG) supported the indexes. Financial data firms like S&P Global (SPGI) declined. Boeing (BA) lost 4.37% after posting delays for its first 777X jet deliveries.
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