Reading Between the Cuts: The Fed, the Market, and What’s Next
Market Recap for the Week of September 21, 2025
After nearly a year without any changes, the Federal Reserve cut its benchmark interest rate by 0.25% this past week. One Fed governor argued for a larger 0.50% cut, but most members agreed on the smaller move.
The S&P 500 gained about 0.6% for the week. Small-cap stocks jumped on the day of the cut but gave back much of those gains by Friday.
Interest rate cuts can be a mixed bag for investors.
Positive side: Lower rates often support higher stock and bond prices. When savings accounts and other cash investments pay less, investors tend to move money into markets seeking better returns.
Negative side: If the Fed is cutting because the economy is weakening, that slowdown can hurt corporate profits and outweigh the benefit of lower rates.
The takeaway: A few small cuts aimed at keeping the economy balanced are generally healthy. But if the Fed feels forced to slash rates because growth is faltering, that’s a warning sign for stocks.
“A few small cuts are generally healthy for markets—but if the Fed is slashing rates to fight a slowdown, that’s a red flag.”
Chart of The Week
This week’s chart shows the history of the federal funds rate—the rate the Fed just reduced by 0.25%.
Blue and green dots mark where policymakers and market participants expect this rate to go over the next few years.
The purple diamond shows their “long-run” goal, currently around 3%.
Think of that 3% as the Fed’s idea of a steady, “normal” rate when the economy is in good shape. Of course, these projections will shift if growth or inflation changes significantly.
The commentary in this blog is for informational purposes only and should not be taken as personalized investment advice
Source: Bloomberg, FactSet, Federal Reserve, J.P. Morgan Asset Management.
Market expectations are based off of USD Overnight Index Swaps. *Long-run projections are the rates of growth, unemployment and inflation to which a policymaker expects the economy to converge over the next five to six years in absence of further shocks and under appropriate monetary policy. Forecasts, projections and other forward-looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecasts, projections or other forward-looking statements, actual events, results or performance may differ materially from those reflected or contemplated.
*Guide to the Markets – U.S. Data are as of September 18, 2025.
