U.S. stock futures rose Thursday following the Federal Reserve’s anticipated interest rate reduction, marking the first cut since December. Fed Chair Jerome Powell emphasized the need to manage risks cautiously, noting particular concern over a weakening U.S. labor market. Analysts foresee additional cuts later this year, though projections from Fed officials indicate that debate over future moves could be heated. Meanwhile, investors are also awaiting the Bank of England’s upcoming rate decision, as gold pulls back from recent record levels.
Futures climb
By 03:00 ET, Dow futures had gained 141 points, or 0.3%, S&P 500 futures rose 28 points, or 0.4%, and Nasdaq 100 futures increased 149 points, or 0.6%, as traders digested both the Fed’s rate move and Powell’s policy comments.
On Wednesday, major Wall Street indices ended mixed, with the Dow Jones Industrial Average rising, while the S&P 500 and Nasdaq Composite fell. Market sentiment was further influenced by Nvidia (NASDAQ:NVDA) shares, which declined after reports that China’s internet regulator blocked large domestic tech firms from purchasing the company’s AI-focused chips.
Fed cuts rates
As expected, the Fed lowered borrowing costs by a quarter point to a range of 4% to 4.25% and signaled that two more reductions could occur in October and December. Powell described the move as a “risk management” adjustment, designed to balance the challenges of a softening labor market against persistent inflation.
He noted that weak jobs data recently has weighed heavily in the committee’s deliberations, saying “downside risks to employment have risen.” Meanwhile, accelerating inflation was considered a more temporary issue. Lower interest rates generally encourage investment and hiring, though they may also intensify inflationary pressures.
Wednesday’s cut did not receive unanimous support within the Federal Open Market Committee, with Stephen Miran advocating for a larger 50-basis point reduction. Miran, a recent appointee by President Donald Trump, had been confirmed to the FOMC minutes before the start of the Fed’s two-day meeting. While the reduction aligned with Trump’s repeated calls for swift rate cuts to support the economy, it was not as steep as he requested.
Responding to questions about the Fed’s independence, Powell affirmed that it is “deeply in our culture to do our work based on the incoming data and never consider anything else.”
Rate projections in focus
The Fed released updated projections showing officials expect another 0.5% in cuts by the end of 2025. If implemented, borrowing costs would fall to 3.5%-3.75%, down from prior estimates. However, seven of the 19 projections suggested fewer cuts this year, with one official advocating to maintain rates at 4.25%-4.5%. Analysts at Barclays noted that one estimate, believed to be Miran’s, envisioned a sharp drop to 2.75%-3%, “in line with calls by the Trump administration to rapidly lower interest rates.”
Markets are pricing in roughly a 90% chance of a 25-basis point cut in October and an 84% chance of a similar move in December, according to CME FedWatch. The projections also show most Fed officials expect 1.6% economic growth this year, with a year-end unemployment rate of 4.5% and underlying inflation at 3.1%. Price gains are not expected to return to the Fed’s 2% target until 2028.
BoE decision ahead
Attention now turns to the Bank of England, which is expected to announce its rate decision on Thursday. Unlike the Fed, the BoE is widely anticipated to hold rates at 4% after last month’s cut, its fifth reduction since August 2024. August inflation was 3.8%, the highest in 19 months and nearly double the BoE’s 2% target, likely prompting policymakers to pause while monitoring whether labor market pressures ease.
The Bank of Japan is also scheduled to meet Friday and is expected to maintain current rates amid political uncertainty.
Gold retreats
Gold extended losses in European trading, pulling back from record highs as the U.S. dollar rebounded. Analysts note that the Fed signaled a measured approach to easing, with two cuts projected for 2025 and only one anticipated in 2026, reflecting a cautious stance. Powell emphasized that decisions would be considered on a meeting-by-meeting basis, suggesting an aggressive cycle of rate cuts is unlikely.
Analysts at ING stated: “They think three more cuts will be enough to boost growth and prompt a revival in the jobs market, but the market is sceptical.”
Gold’s recent surge to all-time highs has been fueled by expectations of monetary easing, geopolitical uncertainty, and strong central bank purchases, which reduce the opportunity cost of holding non-yielding bullion.
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