The Fed just cut rates again, and markets ripped higher. The moves are big, the signals are mixed, and the stakes are rising. I am on this story now, and here is what matters for your wallet and your portfolio today.
What changed today
The Federal Reserve lowered the federal funds rate by 0.25 percentage points. The new target range is 3.50% to 3.75%. This is the third straight cut this year, after moves in September and October. Policy is no longer neutral. It is turning supportive.
The vote was not calm. Three officials dissented, the largest split since 2019. One wanted a bigger 0.50 point cut. Two wanted no cut at all. That divide tells you the Fed sees real risk on both sides.
The Fed also pulled key levers that do not grab headlines but matter for money markets. It cut the interest paid on bank reserves to 3.65%. It lowered the primary credit, or discount window, to 3.75%. And it restarted Treasury bill purchases to keep short term funding smooth. Liquidity is the message.
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Markets surge, bonds push back
Stocks jumped on the news. The Dow rose nearly 500 points. The S&P 500 finished near a record. Easing plus liquidity is a powerful mix for risk assets.
The bond market told a different story. The 10-year Treasury yield ticked up to around 4.20%. That rise says investors still see sticky inflation, or stronger growth later, or both. The yield curve is trying to steepen. Rate cuts at the front, higher yields further out, that is a classic pivot pattern.
Long term yields are higher, so mortgage rates may not drop right away. Expect a bumpy glide, not a straight slide.
Why the Fed moved, and why it is split
The Fed has shifted from fighting inflation at all costs to balancing risks. Job growth has cooled. Price pressures have eased, but not all the way. The decision also landed with less data than usual, because a recent government shutdown delayed key reports. That gap raises the odds of policy error.
Politics also hums in the background. The move drew criticism as too small from the White House. Fed leadership faces public pressure, and that complicates forward guidance. Inside the building, officials disagree on how fast to ease. That is why three dissents showed up today.
Fed rate projections point to one more cut penciled in for 2026. Some private forecasters expect two. The central bank is not ready to promise a path. It wants flexibility, and it is keeping options open.
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What it means for your money
Borrowing costs should drift lower, but unevenly. Credit card rates will adjust slowly. Auto loans should see mild relief. Mortgage rates will follow long yields more than the Fed, so patience is key. Savers should expect lower yields on cash over the next few months.
For investors, the mix looks like this. Equities like liquidity. Profit multiples can hold if inflation stays contained. Credit markets should benefit as defaults stabilize. In bonds, a cautious approach on duration still makes sense while long yields are sticky.
- If you need a loan, start rate shopping now, and be ready to lock on dips.
- Revisit cash. Ladder short term Treasuries to manage reinvestment risk.
- In equities, focus on quality balance sheets and steady cash flow.
- In bonds, mix high grade with a measured slice of investment grade credit.
Match time horizons. Use short duration for near term cash needs, and keep long duration for long term goals.
The path ahead
Today’s package, a cut plus liquidity tools, is a clear pivot. But the Fed is not on auto pilot. It is reacting to data, and some data is missing. That means bigger swings in markets as each report lands. Watch services inflation, core wage growth, and jobless claims. Also watch term premiums in bonds. If they keep rising, the Fed may need to cut more at the front to offset tight financial conditions.
If growth softens and inflation cools, more easing is likely in 2026. If inflation stalls, the Fed will pause. The split vote we saw today will shape those calls.
Frequently Asked Questions
Q: What exactly did the Fed cut today?
A: The Fed funds rate moved down 0.25 percentage points to 3.50% to 3.75%. It also lowered bank reserve and discount rates, and resumed Treasury bill purchases.
Q: Will my mortgage rate drop now?
A: Not immediately. Mortgages track the 10-year Treasury more than the Fed funds rate. With long yields higher, mortgage rates may move down slowly.
Q: Why did long term yields rise if the Fed is cutting?
A: Investors may expect firmer growth later, or they see inflation staying sticky. Both push long yields up, even as short rates fall.
Q: How many more cuts are likely next year?
A: Fed projections point to one more cut in 2026. Some economists see room for two. The outcome depends on inflation and jobs data.
Q: What should investors watch next?
A: Monthly inflation updates, labor reports, and any signs of stress in credit. Also listen for Fed remarks on liquidity and the balance sheet.
Conclusion
The Fed just turned the dial toward easier money, and markets cheered, but the bond market flashed caution. This is a pivot with debate, not a victory lap. Use the window to tidy your balance sheet, upgrade portfolio quality, and stay nimble. The next leg will be set by data, and by a Fed that is no longer speaking with one voice.
