The Federal Reserve cut its key rates by 0.25%, setting the main rate in the range of 4.0%-4.25%. Its attacks on future monetary policy have also evolved. Two further cuts in key rates are expected by the end of the year, and an additional cut is expected in the course of 2026, which would leave the main policy rate just below 3.5%.
Eventually, the Fed expects to stabilise its benchmark rate in the 3.0%-3.25% range.
This is a rate trajectory that is not surprising in absolute terms, but difficult to explain in view of the macroeconomic forecasts published at the same time by the U.S. central bank: they show growth revised slightly upwards, to 1.6% in 2025, 1.8% in 2026 and 1.9% in 2027.
Economy's data points to another direction
Weak job creation is highlighted as one of the reasons for the decision to cut rates. But the forecast for the unemployment rate is unchanged for 2025 (with an unemployment rate at 4.5%), and forecasts an improvement for the future, with this rate falling to 4.4% in 2026 and 4.3% in 2027. At the same time, inflation will remain high. Still expected at 3.0% for the current year, it has been revised slightly upwards, to 2.6%, for 2026.
However, an economy that holds up, a job market that is expected to improve over the next two years, all accompanied by inflation revised upwards and still above targets, does not, under normal conditions, form an environment conducive to rate cuts. But the Fed has chosen to act and is preparing for two more rate cuts by the end of the year.
Doubts for the future trajectory
Beyond the Fed's apparent contradictions, two other factors are muddying the waters.
On the one hand, the very cautious speech of Jerome Powell, Chairman of the Fed, highlights that the real evolution of monetary policy remains dependent on economic indicators. Clearly, the Fed is sailing by sight and confidence in its forecasts is limited.
In addition, Stephen Miran is present on the monetary policy committee, who combines his role with the Fed and that of head of President Trump's Council of Economic Advisers. The only voice in favour of a 0.5% cut at this meeting, he also foresees a very different policy rate path from all the others, with many rate cuts to come.
Investors may therefore wonder what the Fed's monetary policy will look like in the future, especially as Miran's name is being talked about to replace Jerome Powell in 2026.
Uncertainty remains high
There is little doubt that the cut in key rates will be positive for the U.S. economy and the U.S. stock markets. In a market where debt is high and credit use is more common than in our countries, the fall in interest rates will help households and businesses with their spending and investment.
On the stock markets, the exceptional dynamism of the U.S. market is, in large part, due to the tech giants and future sectors such as artificial intelligence or quantum computing. These sectors require significant investment. A cheaper loan makes financing them less complicated.
However, investors were expecting the Fed to cut rates, promise further cuts to come, and also a reassuring speech, which would give them greater visibility for the future. While Jerome Powell was able to offer the first two, the fact that the Fed continues to operate without clear guidance and does not entirely trust its own forecasts is not reassuring. This explains the lukewarm reaction of investors and the U.S. financial markets.
Local decisions with global consequences
While the Fed's logic is questionable, there is no doubt that its decision will have repercussions on the entire financial world. The decline in rates and the announcement of new moves in the near future are pushing down the yields offered by U.S. debt on short maturities, bringing them back to levels closer to those provided by the Eurozone.
Our currency is benefiting from this and briefly approached 1.19USD. A euro at such a level is good news in terms of controlling inflation on the Old Continent. On the other hand, it will further undermine the competitiveness of our companies in a context marked by American tariffs and the slide of many Asian currencies against the dollar in recent months.
Good news for emerging markets
A weaker U.S. dollar and lower yields offered by U.S. debt, which remains the benchmark for global debt markets, are problematic for the Eurozone, but they are good news for emerging markets.
Highly dependent on credit and foreign investment, these markets will benefit from cheaper credit, which will promote their growth and economic activity as a whole. Many of them therefore reacted positively to the Fed's decision.
The U.S. is still a powerhouse
Eagerly awaited by investors, the first cut in U.S. key rates of 2025 is somewhat reassuring but does not bring the visibility that many expected. The U.S. markets, therefore, reacted little.
Nevertheless, we must face the facts: the Fed expects an economy that will perform slightly better than expected in the coming years, and a job market that will gradually improve.
Of course, the uncertainty surrounding these forecasts is significant. But this is certainly not the time to panic. The world's largest economy is still holding up and, helped by cheaper credit and Trump's tax reform, the American consumer should be able to support it.
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Key rates in the United States
Two others reductions will follow the eagerly awaited cut in the Fed's key rates in 2025. But uncertainty remains high, dampening investors' enthusiasm.