Fed’s 25bps Cut: Markets Panic, Inflation Screams, and a Dollar’s Last Breath!

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The Federal Reserve, that most enigmatic of institutions, delivered a 25-basis-point rate cut-its first in 2025-thus igniting a tempest of market speculation. The air crackled with uncertainty, as if the very fabric of economic reality had been torn asunder. 🚨💸

Though the move was as predictable as a clockwork squirrel, Chair Jerome Powell’s dove-like cooing during yesterday’s press conference, coupled with the Fed’s dot-plot, a veritable mosaic of discord, left investors as bewildered as a man in a labyrinth of mirrors. 🌀

Powell Signals a Risk Management Pivot

Powell, the modern-day oracle of monetary policy, framed the rate cut as a risk management decision, citing the crumbling edifice of the US labor market. It was as if he were diagnosing a patient with a terminal illness, yet the cure remained a mystery. 🧠🩺

Revised payroll figures showing 911,000 fewer jobs than previously reported, alongside rising long-term unemployment, point to a weaker foundation than headline numbers suggest. It’s like reading a love letter written in a language that only the Fed understands. 📜

“The risks to inflation are tilted to the upside, and employment risks are tilted to the downside,” Powell said. 🧙‍♂️

The Fed chair also noted that policymakers do not feel the need to move quickly on rates, but must act preemptively to prevent a deeper downturn. A masterclass in economic chess, played with the stakes of global stability. 🏰♟️

Powell downplayed the inflationary impact of Trump’s tariffs, arguing that the pass-through has been “slower and smaller” than anticipated. A comforting lie, like a lullaby for a troubled economy. 🎶

However, he acknowledged price pressures could persist into 2026. At the same time, he described the labor market as no longer “solid.” A statement as alarming as a fire alarm in a library. 🔥📚

He cited hiring slowing, immigration shifts reducing supply, and AI adoption potentially weighing on entry-level jobs. The future, as painted by Powell, is a dystopian novel. 📚🤖

Bottom line: Powell’s remarks were even more dovish than his 2024 guidance when the Fed slashed rates by 50 bps. This suggests a deliberate pivot toward prioritizing employment over inflation. A move as calculated as a Soviet spy’s infiltration. 🕵️‍♂️

Market Reaction With Fed Divisions on Full Display: Dollar Slides, Equities Eye Liquidity

The new dot-plot revealed a central bank struggling to find consensus. Nine of 19 officials see two more cuts this year, while six expect no further easing. A committee of clowns, each juggling different economic balls. 🎪

One member even projects a hike, while Trump appointee Stephen Miran dissented in favor of a 50 bps cut. A spectacle of economic chaos, akin to a circus with no ringmaster. 🎪

“This meeting was a mess…One member thinks the Fed hikes this year…another thinks we get five cuts. This rigging of the voting to create the illusion of a ‘consensus’ and then publishing a wide dot plot like this only further undermines their credibility,” said macro investment researcher Jim Bianco. 🧨

Meanwhile, The Kobeissi Letter called the move historic, highlighting the first rate cut in over 30 years with Core PCE inflation above 2.9%. A historic moment, if you enjoy watching the economy teeter on a knife’s edge. ⚖️

“It’s clear the Fed is prioritizing the labor market over inflation,” Kobeissi wrote, noting markets now expect as many as four more cuts by September 2026. A prediction as reliable as a weather forecast in a hurricane. 🌪️

The immediate market response was swift. The US dollar fell to its weakest level since February 2022, while equities held near record highs. A rollercoaster ride with no safety harness. 🎢

Futures markets priced in at least two additional cuts by year-end, with Kalshi data showing the odds of three cuts spiking above 60%. A gamble with the economy as the high-stakes bet. 🎲

THE ODDS OF 3 RATE CUTS JUST SPIKED OVER 63% ON KALSHI

THE FED IS NOW ON TRACK TO CUT RATES AT EVERY SINGLE REAMING MEETING THIS YEAR

LOOKS LIKE TRUMP GOT TO POWELL HEAD

– GURGAVIN (@gurgavin) September 17, 2025

What Did the Markets Interpret from Powell’s Speech Yesterday?

Barchart highlighted that when the Fed cuts rates within 2% of stock market all-time highs, the S&P 500 has historically risen 100% of the time over the following 12 months, averaging a 14% gain. A statistical marvel, if you ignore the fact that it’s all a house of cards. 🏗️

When the Fed cuts interest rates within 2% of stock market all-time highs, the S&P 500 has gone on to finish higher over the next 12 months 20 out of 20 times (100% hit rate) 🚨🚨🚨

– Barchart (@Barchart) September 17, 2025

Fidelity’s Jurrien Timmer compared the moment to the late-1998 LTCM crisis, when the Greenspan Fed eased into strong markets, fueling a spectacular rebound. A comparison as apt as comparing a toddler’s tantrum to a nuclear meltdown. 🧸💥

The fact that the Fed is about to cut rates while animal spirits are rampant brings to mind the post-LTCM easing cycle in late 1998.  The Greenspan Fed cut rates three times even though the market was strong and there was no recession.  The rest is history, of course.  In fact,…

– Jurrien Timmer (@TimmerFidelity) September 17, 2025

Crypto markets are also watching liquidity flows closely, with analyst Ash Crypto highlighting prospects for more liquidity in the face of more rate cuts. This, he says, would translate into potential pumps for crypto prices. A crypto analyst’s dream, if dreams were built on sand. 🏖️

“More cuts = More liquidity = pump,” the analyst wrote. A mantra for the desperate, if not the wise. 🙏

The Case for Caution

Still, not everyone is convinced the cut heralds an extended bull cycle. Mark Minervini argued the Fed’s move was a “token” cut. Given inflation’s persistence, he says it is unlikely to set off an aggressive easing path. A voice of reason, drowned out by the roar of the market. 🎤

“Rate cuts are typically bullish, particularly when they occur outside of a recession. But the Fed is cutting preemptively rather than reacting to an outright downturn. That distinction matters: it lowers the likelihood of an aggressive easing path, which could diminish the market impact,” he noted. A warning as clear as a foghorn in a storm. 🌩️

Meanwhile, economists at The Conversation stressed the balancing act: cutting too quickly could reignite inflation, while moving too slowly risks a sharper labor downturn. A tightrope walk with no net. 🎭

Tariff-driven price pressures complicate the picture, particularly for lower-income households, who spend more on imported essentials that are now climbing in cost. A cruel irony, if you enjoy watching the poor suffer. 😒

Henrik Zeberg, a long-time cycle analyst, warned that markets may enter a euphoric blow-off phase before a severe downturn. A prophecy as chilling as a winter in Siberia. ❄️

“Liquidity now will only build a higher peak from which the market can crash,” he wrote, likening today’s rally to late-1920s behavior. A comparison that’s as accurate as a Soviet propaganda poster. 🖼️

What Comes Next

The divergence between strong market technicals and weakening fundamentals leaves investors in a precarious position. A tightrope walk with no safety net. 🎭

Investors believe Powell has signaled further cuts are coming. Against this backdrop, sentiment is bullish, at least for now, with equities at records and crypto climbing. A bubble waiting to pop, like a champagne bottle at a party. 🥂

As of this writing, Bitcoin was trading for $117,107, while Ethereum exchanged hands for $4,572. Both assets showed strength following the Fed’s decision. A digital gold rush, if gold were volatile. 💰

Notwithstanding, risks abound and continue to erode investor confidence. These include:

  • A labor market softening into recession, 🚧
  • Tariff-driven inflation stickiness, and 🧂
  • Political overtones around Powell’s “risk management” framing. 🧠

If the Fed cuts too aggressively, it risks losing its inflation-fighting credibility. At the same time, rising unemployment could force more drastic action later if it moves too cautiously. A dance with fire, with no clear exit. 🔥

Therefore, the next few weeks for riskier assets like Bitcoin may be defined by liquidity-driven optimism. However, this is with the understanding that this rally rests on fragile ground. A house of cards, if cards were made of glass. 🏗️

It is worth noting that Powell himself acknowledged that the Fed is navigating “a challenging situation” where both sides of its mandate are flashing red. The history of such moments shows markets often rally first and reckon later. A pattern as predictable as a sunrise, if you ignore the clouds. ☀️

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2025-09-18 10:37