Markets React to Fed’s First Rate Cut Since 2024

The week in the United States was marked by a shift in monetary policy, mixed economic data, and high-profile diplomatic moves. The Federal Reserve cut interest rates by 25 basis points, bringing them to a range of 4.00%–4.25%, in what was the first downward adjustment since last December. The decision responded to growing signs of cooling in the labor market, although inflation remains above the 2% target. Fed Chairman Jerome Powell said the move seeks to prevent further deterioration in employment and is part of a risk management strategy. FOMC projections anticipate two additional cuts before the end of the year and a more moderate path of easing toward 2026. The only dissenting vote was from Governor Stephen Miran, who supported a larger, half-point cut and forecasts a lower benchmark rate than the consensus toward the end of the year.

On the economic front, recent indicators paint a mixed picture. Retail sales expanded 0.6% in August, doubling expectations and repeating July's strong performance, confirming that consumption—the main driver of the U.S. economy—remains firm despite some weakness in the labor market. Industrial production rose slightly by 0.1%, driven by manufacturing, although it still reflects moderate momentum. In contrast, the real estate sector showed a deeper deterioration: housing starts fell 8.5% and permits fell 3.7%, reaching multi-year lows as a result of high financing costs and lower demand. On the labor front, initial jobless claims fell to 231,000 after the sharp rebound the previous week, easing concerns about an accelerated slowdown. In addition, the Philadelphia Fed Manufacturing Index surprised on the upside, rising to 23.2 in September, its highest level in eight months, suggesting some resilience in the industrial sector. On the other hand, figures released by the Treasury showed that foreign holdings of US bonds reached a record $9.16 trillion in July, reflecting strong international confidence in the country's assets.

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