Key takeaways

• The Federal Reserve cut interest rates by 0.25% to the target range of 3.75%–4.00%, its second reduction of the year, while signalling a more balanced stance towards inflation and employment. The FOMC also confirmed plans to end Quantitative Tightening on 1 December, marking a key shift in liquidity management as it transitions towards a neutral policy stance.
• Fed Chair Powell emphasised that central bank policy isn’t on a preset course, describing another rate cut in December as “far from a foregone conclusion.” He noted that economic growth has moderated, with GDP expanding 1.6% in the first half of 2025, down from 2.4% last year, supported by resilient consumer spending and business investment, but offset by continued housing weakness. Mr Powell also mentioned that inflation has eased signficantly from its highs in mid-2022.
• We still expect a 0.25% rate cut in December but no additional reductions next year, bringing the target range down to 3.50-3.75% by end-2025. For US equities, lower policy rates should be accretive to earnings and help keep valuations in check. For fixed income investors, the Fed cut after a pause provides positive returns in the 12 months after the first cut. Typically, the yield curve follows the policy rates lower, but there may continue to be friction in the Treasury markets due to the government shutdown, federal fiscal issues, and long-term deficit reduction. We remain overweight on US equities and global investment grade bonds. History shows the USD typically weakens when the Fed is easing policy so long as the US economy isn’t in recession.

Please refer to the full report for details about the event and our investment view.

https://www.hsbc.com.my/wealth/insights/market-outlook/special-coverage/the-fed-reacts-to-economic-uncertainty-amidst-the-government-shutdown/