Core Viewpoint - The Federal Reserve has lowered the benchmark interest rate by 25 basis points to a range of 4% to 4.25%, marking the first rate cut in nine months since December of last year. This decision reflects a cautious approach to managing economic risks, balancing concerns over inflation and employment [1][2][9]. Interest Rate Decision - The FOMC meeting resulted in a 25 basis point rate cut, with the Fed characterizing this as a "risk management" cut. The internal division among Fed members regarding future rate cuts was highlighted, with the dot plot indicating two more cuts within the year [5][10][9]. - The market had anticipated this rate cut, as evidenced by a 100% implied probability of a cut prior to the meeting [3][4]. Market Reactions - Following the announcement, U.S. Treasury yields and the dollar initially rose, while gold prices fell. The stock market showed mixed reactions, with the Dow Jones rising and the Nasdaq experiencing a slight pullback [6][7][21]. Economic Outlook - The Fed's economic projections were slightly adjusted, with a modest increase in growth forecasts for 2025 and 2026, while the unemployment rate was slightly lowered. However, inflation expectations for 2026 were raised, indicating ongoing concerns about inflationary pressures [13][15]. - The current economic situation is characterized as not being in a recession, but rather showing signs of structural divergence, particularly in traditional manufacturing and real estate sectors, which may benefit from future rate cuts [16][20]. Future Rate Cut Expectations - The dot plot suggests the possibility of two more rate cuts this year, but there is significant internal disagreement among Fed members regarding the timing and extent of these cuts [10][9]. - The market is currently pricing in a high probability of further cuts, with futures indicating a likelihood of multiple rate reductions in the coming months [21][20]. Asset Market Implications - The transition from a "loose trading" environment to a "recovery trading" phase is anticipated, with various asset classes reflecting differing expectations for future rate cuts. For instance, interest rate futures are pricing in more cuts compared to the Fed's dot plot [21][28]. - The stock market outlook remains positive, with potential for further gains, particularly in technology and cyclical sectors, as the Fed's actions may stimulate demand and improve economic conditions [26][33]. International Market Considerations - The Chinese market is expected to benefit from liquidity improvements, with a focus on sectors that align with U.S. economic recovery, such as technology and consumer goods. However, domestic policy support will be crucial for sustaining this performance [33][34].