Fed Rate Cut Spurs Stock Rally, But Powell's Caution Tempers Crypto Gains
US equities surged after a third consecutive rate cut, while markets parsed the Federal Reserve's signal for a potential pause in future easing.
U.S. stocks rallied significantly while cryptocurrencies saw more modest gains after the Federal Reserve implemented its third consecutive quarter-point interest rate cut on Wednesday, though Chair Jerome Powell signaled a higher bar for future reductions.
The S&P 500 gained 0.7% and the Dow Jones Industrial Average climbed 1.1%, adding nearly 500 points, as equity investors cheered the immediate dovish move. The decision, which was widely anticipated, brings the central bank's benchmark federal funds rate to a target range of 3.5% to 3.75%. The positive sentiment was bolstered by Chair Powell's comments effectively ruling out near-term rate hikes, a move that provided relief to the market.
However, Powell's accompanying commentary introduced a note of caution, suggesting that monetary policy might now be in a 'neutral' position. This implies the central bank could pause its easing cycle to assess the impact on the economy. "The Fed's statement signaled a higher bar for future reductions," according to reporting from the Associated Press, tempering what might have been a more euphoric rally.
This nuanced signal prompted a more mixed reaction in risk-sensitive assets like cryptocurrencies. Bitcoin, the leading digital asset, rose on the news but its gains were more contained. The cryptocurrency climbed approximately 2.4% to trade around $92,600 after the announcement, having briefly touched $94,500. Some analysts interpreted the restrained move as a reflection of disappointment that the Fed did not signal a more aggressive easing path for 2026.
'While equity markets focused on the rate cut itself, the digital asset space appears to be pricing in the forward guidance,' said one market observer. 'The idea of a pause means the 'easy money' narrative that has fueled risk assets might be taking a breather.'
Still, the immediate reaction in equities was decisively positive. The broad-based rally saw the S&P 500 finish just shy of a new closing record, as detailed by Investopedia. The tech-heavy Nasdaq Composite also posted a gain of 0.3%.
Investors are now looking ahead for further clues on the Fed's next steps, with upcoming inflation and employment data likely to heavily influence the anlaysis. The Federal Open Market Committee's own projections, know as the 'dot plot', still suggest the possibility of one more quarter-point cut in 2026, though reports of a 'fractured vote' among policymakers suggest a growing debate within the central bank about the path forward.