📈US100 reacts to Fed decision

The Federal Reserve delivered a 25 bp rate cut to 3.75%, in line with Wall Street expectations. However, it is the updated PCE inflation projections that dominate market attention today and markets are responding with cautious optimism. The 9–3 vote highlights growing divergence within the Fed. The downgrade in long-term PCE inflation is a positive signal for growth stocks, reducing the risk of sustained upward pressure on yields. However, the divergence in views for 2026 is a strong indication that:

• Policy uncertainty will rise,

• Market reactions to each inflation and labor-market data point will become even sharper.

Rising employment risks are likely to influence policy decisions for years to come. Futures on Nasdaq 100 (US100) surged almost 100 points after the Fed decision. Now Wall Street is focusing on Fed chair Powell speak, scheduled at 7:30 PM GMT. Volatility may persist and final reaction to today Fed decision remains unknown. However, we can see some clearly dovish signs, with a potential major policy shift ahead in 2026.

Source: xStation5

Lower PCE projections = Equity markets like it

The important factor for equity markets:

• PCE inflation for end-2026: 2.4% (previously 2.6%)

• Core PCE for 2026: 2.5% (previously 2.6%)

• This is a symbolic but meaningful shift — the Fed shows increased confidence in the disinflation process.

• As a result, Nasdaq 100 (US100) futures moved higher immediately, with growth and tech names benefiting from a softer long-term inflation outlook.

Rate projections

For 2026:

• The Fed maintains a median of just 25 bp of cuts,

• 7 officials expect no cuts,

• 4 officials expect at least three cuts,

• Another 4 officials see two cuts.

• This represents the greatest dispersion in forecasts since the pandemic.

• The market receives a clear message: the era of a unified and predictable Fed is over.

Longer-term projections:

• Policy rate at 3.4% in 2026

• 3.1% in 2027

• 3.1% by end-2028

Labor Market: signs of weakening

• Median unemployment projection for 2025: 4.5%

• For 2026: 4.4%

• The Fed explicitly acknowledges rising risks to employment.

• “Unemployment has edged up” — policymakers took note, which is quite dovish remark.

• Growing labor-market concerns increase the Fed’s willingness to deliver further easing if needed.

Economy: moderate growth ahead

• GDP projection for 2025: 1.7%

• GDP projection for 2026: 2.3%

• The Fed expects stable but unspectacular economic expansion.

• “Moderate pace” remains the defining phrase for the outlook.

Fed balance sheet

The Fed announced a notable increase in short-term Treasury purchases:

• $40 billion in T-bills over the next 30 days

• Elevated purchases for the coming months

• Removal of operational limits on overnight repo facilities

• “Pace of reserve purchases likely to be significantly reduced” — but at a later stage

• This resembles a form of soft quantitative easing (quasi-QE), even if the Fed avoids the terminology.

• Both equity and bond markets interpret this as a liquidity-supportive signal.Source: xStation5