The Federal Reserve (Fed) lowered the federal funds rate target range by 25 basis points to 4.00% to 4.25% at its September meeting, marking the first cut since December 2024. The move was anticipated and signaled the start of a new easing cycle but also revealed divisions within the Federal Open Market Committee (FOMC). Chair Jerome Powell and the policy statement emphasized downside risks to employment. Officials acknowledged that core inflation is likely to remain elevated longer than expected. Governor Stephen Miran dissented, preferring a larger 50 basis point cut, underscoring pressure from some members to act more aggressively.

These divisions were most evident in the updated dot plot, the Fed’s chart showing where each policymaker expects the federal funds rate to be in the future, and in the Summary of Economic Projections (SEP). The median projection pointed to two additional quarter point cuts before year-end, although nearly half of officials expected only one or none. At the same time, the SEP raised the growth outlook for 2025, lowered unemployment projections, and revised core inflation higher. This mix left markets debating whether the Fed has shifted toward a more dovish stance or instead sees the labor market as weaker than headline data suggest.

Markets responded favorably to the cut, signaling cautious optimism. Stocks advanced, with the S&P 500 reaching record highs, reflecting confidence in a supportive backdrop. Treasury moves were mixed: short-term yields fell on the direct impact of the lower federal funds rate and expectations for further easing, while longer maturities rose as investors weighed persistent inflation and the Fed’s cautious guidance. As of this morning, the 2-year note closed near 3.57% and the 10-year near 4.13%. Oil held steady at $63 per barrel, and gold touched a high this week above $3,700 an ounce before retreating, underscoring its role as a hedge against policy uncertainty. The dollar strengthened modestly. Overall, these moves reflected a market supportive of growth but attentive to inflation risks and evolving policy.

Looking ahead, Chandler’s base case calls for additional rate cuts this year and into 2026. With only two FOMC meetings remaining, the scope for further action this year is limited. We anticipate softer economic data through year-end, while inflation is likely to remain above the Federal Reserve’s target. Recently enacted tax cuts may provide a modest boost as the economy transitions into early 2026. In this environment, Chandler is maintaining a measured bias toward longer duration relative to the benchmark, as short-term yields remain influenced by the prospect of Fed easing. We will continue to adjust our strategy as conditions evolve to ensure portfolios remain aligned with client objectives.