Economy 'Edging Back Towards Goldilocks,' Lakshman Achuthan

Lakshman Achuthan, COO and co-founder at ECRI, talks about US growth, a soft landing, and outlook for inflation following the Fed's decision to cut rates.

Federal Reserve Chair Jerome Powell rallied a deeply divided committee of policymakers behind an interest rate-cut, tuning out heavy political pressure to find middle ground among officials variously worried by a faltering labor market and lingering inflation concerns.

The quarter-point reduction — the first cut of the year — came after a significant slowdown in job growth and an unprecedented push by the White House for much lower rates. But with the effects of tariffs on inflation still uncertain, Powell made clear that Fed officials will face difficult trade-offs in the coming months as they consider whether to keep cutting.

“It’s challenging to know what to do,” Powell said Wednesday after officials voted 11-1 to lower the target range for the federal funds rate to 4%-4.25%. “There are no risk-free paths now.”

The decision to cut rates was nearly unanimous, with the lone dissent coming from Fed Governor Stephen Miran, a close ally of Donald Trump who favored a larger reduction. Fed Governors Christopher Waller and Michelle Bowman, who in July dissented in favor of a rate cut, supported this week’s move.

Getting that much consensus was a victory for Powell, who in his final months as Fed chair is attempting to ward off the greatest threat to the Fed’s independence in generations. But new projections released Wednesday showed policymakers are still split over the outlook for rates.

The median projection called for two more reductions in 2025, adding one more cut than policymakers saw in June. But six Fed officials penciled in no further rate cuts this year, revealing that a gaggle of policymakers remain deeply concerned about inflation.

One policymaker even suggested the committee should have stayed on hold Wednesday, and through the end of the year. At the other extreme, one Fed official projected the policy rate should be cut another 125 basis points by December.

Wall Street’s bets that Federal Reserve rate cuts will keep powering Corporate America drove stocks toward fresh all-time highs, with traders rushing to the riskier corners of the market.

Economically sensitive shares led gains a day after the Fed deployed its first reduction this year and signaled the potential for more. A muted reaction in the immediate aftermath of the decision gave way to a rally that lifted stocks big and small on Thursday.

The S&P 500, the Nasdaq 100, the Dow Jones Industrial Average and the Russell 2000 are all on track to close at records. This conjunction is rare, having occurred on just 25 other days this century, according to data compiled by Bloomberg.

Easing monetary policy is a big source of support for stock bulls at a time when sky-high valuations are confronting bearish seasonality. Over the last 75 years, the S&P 500 has posted an average decline of 0.7% in September, according to LPL Financial. The gauge is up almost 3% this month.

“The Federal Reserve is cutting interest rates during a time when stocks are at record highs and the economy is still growing,” said Robert Schein at Blanke Schein Wealth Management. “This dynamic is bullish for stocks.”

About 370 shares in the S&P 500 rose, with tech leading the way. The Nasdaq 100 climbed 1.2%. A $5 billion investment from Nvidia Corp. in Intel Corp. drove the ailing chipmaker up about 23%. The Russell 2000 added 2.3%.

Bonds erased gains after data showed jobless claims dropped by the most in nearly four years, suggesting companies are still holding onto workers.

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