Market Analysis - 18/09/25

Fed Cuts 25bp – Markets Swing on Mixed Signals

US stocks ended Tuesday choppy after the Federal Reserve delivered a widely anticipated 25-basis point rate cut, lowering the funds rate to 4.00%–4.25%. The Dow slipped 0.12% to 45,703, the S&P lost 0.09% to 6,600, while the Nasdaq fell 0.17% to 22,295. Despite an upgrade to growth projections, with 2025 GDP raised from 1.4% to 1.6%, Chair Powell described the move as a “risk management cut,” which traders interpreted as leaning toward preventing a recession. The conflicting signals left equities volatile, with indices swinging between gains and losses. Treasuries saw safe-haven buying, with the 2-year yield falling 2.8 basis points to 3.49% and the 10-year slipping 1.2 basis points to 4.01%. The US dollar initially rallied but closed softer, with the DXY down 0.34% at 96.88 as traders digested the divided Fed outlook. In commodities, gold hit a new record intraday at $3,707 following the rate cut, but reversed sharply to settle down 0.85% at $3,655. The selloff occurred after the Fed’s dot plot revealed deep divisions: nine officials projected two more cuts this year, two projected one more, six expected none, while new Governor Milan shocked markets by forecasting five cuts. Oil prices held firmer, supported by the weaker dollar and ongoing supply concerns, with Brent finishing up 1.12% at $68.85 and WTI up 1.34% at $64.95 a barrel.

Fed’s Mixed Messaging Drives Volatility

Markets remain unsettled as traders weigh Powell’s cautious tone against the Fed’s upgraded growth forecasts. The “insurance-style” cut signals concern about downside risks, even as projections suggest stronger economic momentum ahead. This tug-of-war left equities unable to sustain direction, with volatility set to continue. Gold’s record-breaking move highlighted persistent safe-haven demand, but the conflicting rate path projections triggered heavy profit-taking by the close. Oil extended gains on currency weakness and geopolitical undercurrents, while bond yields retreated, reflecting caution among fixed-income investors.

Looking Ahead

Attention now turns to US macro data later this week, including jobless claims and housing figures, which could influence near-term rate expectations. FX traders will also watch closely for any follow-up commentary from Fed officials, while energy markets remain sensitive to both supply headlines and the broader dollar trend. Precious metals are expected to stay volatile as investors parse the Fed’s divided stance on policy.