Today, the Federal Reserve made a significant move by cutting interest rates by 25 basis points, a decision that reflects its measured response to current economic conditions. Although inflation remains above the Fed’s 2% target, the pace of price increases has slowed enough to give the central bank room to act without significantly undermining its inflation-fighting credibility. This move also comes at a politically sensitive moment, particularly as Trump seeks to contrast his economic record with the current administration’s handling of inflation and interest rates.
With the release of the latest data, industry experts and professionals weigh in on what the Fed’s interest rate cut means for the economy and markets.
Lindsay James, investment strategist at Quilter comments:
“Having endured months of political pressure and insults, Jerome Powell will likely deliver today’s decision to cut interest rates with somewhat gritted teeth. However, the Federal Reserve has found itself backed into a corner, and today’s cut surely would have come regardless of the president’s campaign.
The Fed finds itself in a difficult position, with both sides of its dual mandate moving in opposite directions. The labour market is in a more precarious position, whilst inflation is once again on the rise. Until sharp data revisions by the Bureau of Labour Statistics prompted Powell to highlight a ‘shifting balance of risks’, this cut was seen as hanging in the balance. However, the decline in job creation that has seen payrolls revised down by 911,000 in the year to March has highlighted that cracks are emerging in the US economy, and the Fed clearly feels it warrants action. For now, unemployment remains relatively stable, but this is the result of lower growth within the labour force – due in part to the new stance on immigration, leaving the labour market in a ‘curious kind of balance’, to use the words of the Fed Chair.
While the Fed has finally given in and cut rates for the first time since December, taking rates to the lowest level since late 2022, Trump will not yet be satisfied. He has repeatedly called for far deeper cuts, and that pressure is unlikely to let up. He has made no secret of his want for a more compliant central bank, and today’s cut may just add fuel to that fire. While he has made his views clear, the Committee still remains majority independent. Governor Kugler’s hurriedly appointed replacement, Stephen Miran, is effectively on a four-month secondment from his role as a White House economic adviser and was the only member of the committee to vote for a larger 0.5% rate cut. Alongside Governors Bowman and Waller, appointed by the president in his first term, the three Trump appointees remain the minority on the 12-strong committee. However, should Governor Cook lose her legal case and subsequently her job, this independence may yet be called into question.
Nonetheless, the monetary policy committee continues to stress its data-driven approach for now, and the prospect of resurgent inflation remains a risk. Core PCE inflation – the measure targeted by the Fed – has risen from 2.6% in April to 2.9% in July. Lower interest rates could serve to further stoke this, as could the still unclear impact from tariffs. Markets are currently pricing in another one to two quarter point cuts by year end, but only time will tell.”
Richard Flynn, Managing Director at Charles Schwab UK comments on today’s Fed interest rate decision:
“The Federal Reserve’s decision to ease monetary policy with a 25-basis-point cut was widely anticipated, reflecting a measured response to the recent softening in the US labour market while temporarily setting aside concerns over lingering inflationary pressures from tariffs.
Although the summer began with expectations of holding rates steady, the labor market has shown more signs of weakness than anticipated, with jobless claims now at their highest levels in nearly four years. Inflation remains above the Fed’s 2% target, but the pace of price increases has slowed, giving the central bank some room to act without undermining its inflation-fighting credibility.
Investors will now turn their attention to whether the Fed plans additional rate cuts this year, particularly as recession fears continue to grow.
Today’s decision may bring some relief to the White House, which has been publicly pressuring the Fed to act. However, despite this move, political scrutiny of the central bank is unlikely to subside anytime soon.”
Ed Harrold, Investment Director at Capital Group comments:
“Today’s rate cut, in the face of a softening economic picture in the U.S., is a sign that the Fed is willing to support the economy despite potentially stubborn inflation. This sentiment should be supportive for bonds. In particular, high-quality credit, such as global investment-grade corporate bonds, stand out as a compelling way to build a defensive ballast in portfolios. Yields remain attractive—around 5%—offering meaningful income potential and a cushion against volatility. Duration is once again proving its worth, providing diversification benefits as the economy slows, though not yet in recession territory, and central banks pivot towards easing.
With uncertainty rising, a robust defensive allocation is more important than ever. Corporate fundamentals and technicals are strong, with credit metrics and leverage at healthy levels. Demand for investment-grade corporates remains solid due to the elevated yield environment.
Despite tight spreads, bottom-up investors can still find selective opportunities—particularly in sectors such as European banks, US electric utilities, and pharmaceuticals. European peripheral banks, for example, are showing improving fundamentals and attractive valuations, making them a standout choice for those seeking resilient yields and capital preservation in today’s market.”
Rob Agnew, Head of Isio Private Office, comments:
“The Trump administration’s push for the Fed to lean harder on growth could have far-reaching implications. The immediate aim is clear: stimulate economic growth, boost equity markets, and lower financing costs for U.S. firms. All else being equal, this should provide an uplift to asset valuations, which is positive for private capital and equity exposures. While markets expected a 25 basis points cut, the Fed’s dovish forward guidance could deliver a short-term boost.
However, this strategy carries significant risks. Inflation is the obvious concern, but if growth fails to materialize – perhaps due to tariffs or trade wars slowing global growth – we could face stagflation, which is notoriously difficult to manage, as history in the 1970s shows.
It’s also important to note that reducing base rates doesn’t automatically lower interest rates across the curve. Inflation expectations and market risk perceptions could offset the cuts, meaning the benefits for corporate America – cheaper debt issuance – and for consumers, such as lower mortgage costs, may not materialize.
Finally, there are risks in the bond markets. The U.S. currently holds an AA+ credit rating, and Treasuries are considered the ultimate flight-to-quality asset, allowing the government to issue debt freely. But with the debt ceiling raised and significant new issuance expected, the yield curve could steepen further. Worse still, a downgrade of U.S. credit would put upward pressure on long-term borrowing costs. These dynamics could have systemic implications, as Treasuries underpin much of the financial system, and could particularly strain small to mid-sized U.S. banks.
This period of instability has an unsettling impact on both family and endowment investment portfolios. It’s never been more important for investors to understand their exposure, query their approach and not assume that their wealth manager will act in their best interests.”
Richard Flax, Chief Investment Officer at Moneyfarm, comments:
“In line with broad expectations, the Federal Reserve delivered its first rate cut of 2025, easing the benchmark rate by 25 basis points. This marks the Fed’s first cut since initiating the most aggressive tightening cycle in four decades, as it seeks to support a weakening labour market, as jobless claims have now risen to their highest level in four years.
This is why the Fed has chosen to look past the inflation overhang, despite consumer prices rising by 2.9% year-on-year in August.
The rate cut is likely to boost short-term sentiment for risk assets, with the stock market expected to benefit. For US households and businesses, today’s move offers modest relief, but the broader message is one of caution rather than a pivot towards rapid easing.”
Isaac Stell, Investment Manager at Wealth Club said:
“The Federal Reserve has lowered interest rates by 0.25%, marking its first rate cut since December 2024 amid mounting political pressure.
In a highly anticipated meeting, the Fed chose to ease rates in an effort to support a weakening labour market. The move comes against a backdrop of intense political scrutiny, with both Chair Jerome Powell and Governor Lisa Cook facing sustained rhetorical and legal challenges making today’s decision feel all the more political.
The justification behind the cut focuses on employment rather than inflation. The labour market has been deteriorating more rapidly than expected, with the unemployment rate recently reaching its highest level since October 2021. Despite inflation remaining comfortably above the Fed’s target, signs of strain in the jobs market were compelling enough to prompt action.
However, the decision is unlikely to satisfy the President who made it publicly known he expected a “big cut”, not the 0.25% the Fed has opted for today. Unfortunately, the timing and circumstances of today’s move make it appear more like a concession rather than a strategic policy shift, potentially fuelling concerns about the Fed’s independence.”
Gerrit Smit, lead portfolio manager of the Stonehage Fleming Global Best Ideas Equity fund said:
‘The 0.25% cut in the Fed’s target rate, the first cut this year, is as widely expected. This signals a weakening, but not ‘too cold’ US economy. Historically, a Fed cut with the stock market close to an all-time high, was predominantly followed by continuing strong stock market performance.’
