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Why this rate cut is different
The September cut continues the Fed’s shift away from the rapid hikes used to fight inflation in 2022. It is a small, preemptive adjustment designed to support steady growth – not a crisis response. While officials disagree on the exact path and pace of cuts, recent projections point to the possibility of additional decreases this year as the outlook evolves.
Context that matters more than the headline move
- The Fed weighs growth, employment, and inflation with a dual mandate in mind.
- The latest cut is about risk management: smoothing the path for the economy rather than rescuing it.
- Changes in leadership and policy preferences can influence short-term rates, but long-term rates are driven largely by market and economic forces.
The data backdrop: mixed signals
- Jobs: August payroll growth slowed and prior months were revised down. Unemployment ticked up to 4.3%, pointing to a gradual cooling rather than a sharp downturn. Preliminary benchmark revisions indicate job growth from March 2024 to March 2025 was lower than earlier reported.
- Inflation: PCE inflation is about 2.6% and core PCE near 2.9%. CPI measures remain sticky. That keeps the Fed cautious even as growth cools.
What this can mean for portfolios
When cuts occur outside of recessions, they often support markets by lowering borrowing costs and improving financial conditions. Historically, equities and high-quality bonds have tended to benefit, while cash yields usually drift lower after cuts. Still, outcomes vary by sector and maturity, and every cycle is different – so diversification and rebalancing remain essential.
Practical investor takeaways
- Expect lower yields on cash over time if easing continues.
- Bond prices can benefit when rates fall, though responses differ across duration and credit quality.
- Equity markets near highs can still advance after “insurance” cuts, but volatility is normal.
- Stick to a disciplined plan: rebalance, manage taxes, and keep liquidity for near-term needs.
How Viridian Wealth can help
We translate policy shifts into plain-English guidance tied to your goals. Common steps we explore with clients:
- Reviewing cash reserves and near-term spending needs
- Stress-testing retirement income plans under varying rate paths
- Calibrating bond duration and credit quality
- Rebalancing to maintain your target mix without chasing headlines
Key takeaways
- The Fed cut 0.25% in September as part of a gradual easing cycle – not an emergency response.
- Labor market data is cooling, while inflation progress has slowed, creating a mixed picture.
- Policy disagreements and politics make headlines, but the Fed’s dual mandate drives decisions.
- Outside recessions, rate cuts often support stocks and high-quality bonds, while cash yields tend to fall.
- Long-term investors are best served by plan-driven allocation, diversification, and periodic rebalancing.
FAQs
Is this the start of many more cuts?
Possibly, but the pace depends on incoming data for growth, jobs, and inflation. Plans should not rely on predicting each meeting.
Should I move out of bonds before rates fall?
Bonds often play a stabilizing role. Duration and credit exposure should reflect your time horizon and risk tolerance, not a single policy move.
What if inflation reaccelerates?
If inflation climbs, long-term rates could rise even if the Fed cuts short-term rates. That is why diversification across asset classes and maturities matters.
Is cash still attractive?
Cash is useful for emergencies and near-term spending. Over longer horizons, falling short-term rates can make cash less competitive versus bonds and equities.
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Disclosure
This material is for informational purposes only and is not intended as investment, tax, or legal advice. Investing involves risk, including possible loss of principal. Consult a qualified professional regarding your personal circumstances.