After the US Federal Reserve cut US interest rates by 25 basis points yesterday, wealth managers discuss the impact on asset allocation and the likelihood of further reductions at the next two meetings.

The US Federal Reserve has cut US interest rates by 25 basis points – the first reduction this year - and policymakers’ projections look at the prospect of further reductions at the next two meetings.

Compared with the last Federal Open Market Committee (FOMC) meeting in July, when the Fed said that labor market conditions remain solid, the committee decided yesterday that downside risks to employment have risen.  Although inflation has moved up and remains elevated, the fed funds effective range was lowered to 4.00-4.25 per cent. The reduction was the first of the year, after the central bank cut rates by 100bps in 2024. There was one dissent from Stephen Miran, the new appointee, who favored a larger 50bps cut.

Policymakers’ median projection for the fed funds rate at the end of the year indicates two additional cuts are expected this year. Because the rate cut was widely expected, the immediate market reaction was muted. The S&P 500 dipped briefly during the post-FOMC conference when chair Jerome Powell noted that a good number of officials see no more rate cuts this year but recovered to close roughly flat on the day. US 10-year Treasury yields finished 6bps higher at 4.08 per cent. Gold traded modestly lower, down 0.8 per cent at dollar 3,665/oz, while the dollar index rose 0.4 per cent.

“In our base case, we estimate that the Fed will cut interest rates by a further 75bps between now and the first quarter of 2026, as we believe the central bank will continue to prioritize labor market weakness over what is still likely to be a temporary increase in inflation,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note.

“In this context, we believe now is an opportune time for investors to review cash allocations. The imperative to put cash to work is increasing. We recommend that investors limit liquidity holdings to those needed for near-term expected portfolio withdrawals, and manage their liquidity strategy to optimize returns,” Haefele added.

Other reactions from wealth managers
Joyce Huang, co-head investment strategist at American Century Investments
“This is the outcome we expected and is in line with our team's current market outlook. We didn't expect a 50bp rate cut today, but do expect a slowdown in the US economy to continue over the next six months into the first quarter of 2026. Prior to today's meeting, we were expecting only one additional cut after today in 2025, but now we expect a cut at the each of the last two meetings based on the dot plot and the new Governor Miran dissenting in favour of a 50bp cut.  We see this as a positive for bonds and believe investors should allocate away from cash and floating rate instruments and add duration to benefit from falling rates in the short end of the yield curve.”

Daniele Antonucci, chief investment officer at Quintet Private Bank (parent of Brown Shipley)
“The Fed cut rates as expected, but this is still key for markets because it shows the central bank is now prioritising downside risks to job growth even with inflation still sticky. Tariffs continue to pose inflation risks, but the impact so far looks more gradual than feared. The slowdown in employment growth strengthens the case for more cuts this year. That shift should weaken the dollar, and our conviction in this view has grown. Rate divergence is widening: the European Central Bank (ECB) has cut and now looks on hold, the Bank of England remains cautious, while the Fed is moving towards easier policy. At the same time, mounting US fiscal pressures, with debt and spending rising, continue to weigh on the greenback. Political risks add another layer, from Trump’s public criticism of the Fed to speculation about Powell’s succession. Confidence in US institutions is being questioned, and the dollar’s appeal is slipping. We have responded by further increasing our underweight dollar stance, rotating into hedged equity exposure to manage the risk. We remain underweight US Treasuries, preferring to stay cautious until the outlook clears.”

George Lagarias, chief economist at Forvis Mazars
"The rate cut delivered was fully expected. Markets had already discounted it, and are pricing in two more before the end of the year, despite a worsening inflation outlook. The questions for investors were two: a) will the Fed deliver two more cuts or are the markets too optimistic and b) to what extent is the US central bank still acting independently? For the time being, only one dissent in the meeting suggests that the Fed remains independent and markets are celebrating the relative harmony. So are two more cuts too optimistic? Not necessarily. The Fed seems poised to weigh growth and employment over inflation concerns. Having said that, it must be acknowledged that inflation pressures are becoming more pronounced. Investors should not rule out a change of course if inflation accelerates at a faster pace than expected."

Chris Beauchamp, IG's chief market analyst
"The market reaction shows that Powell seemed to get everything right last night. A cut that leans dovish overall, and a greater focus on employment, means that we should expect a gradual loosening of policy. Crucially too it seems that Fed independence remains intact, since Miran remains an outlier with his calls for 50bps of cuts at the next two meetings. While it isn't the full-on rate cutting exercise demanded by the White House, it seems investors overall are content with Powell's performance."

Dan Siluk, head of global short Duration & liquidity and portfolio manager at Janus Henderson Investors
“The Federal Reserve resumed its easing cycle with a 25bp rate cut, citing rising risks to employment. The statement struck a dovish tone, acknowledging slowing job gains and softening labour conditions. Yet, the Fed also noted that inflation remains elevated, and its own projections show stronger growth and falling unemployment – a curious backdrop for rate cuts. The dot plot now implies two more cuts this year, but Powell downplayed its significance, framing the outlook as “more balanced” rather than decisively tilted toward labour market risks. The SEP revisions including higher inflation, higher GDP, and lower unemployment raise questions about the internal consistency of the Fed’s policy path. Markets may welcome the easing bias, but the messaging remains nuanced and far from a full pivot.”

Jack McIntyre, portfolio manager, Brandywine Global
“In addition to the political jabs aimed at them, the Fed is in a tough spot. They expect stagflation, or higher inflation and a weaker labor market. That is not a great environment for financial assets. One could call the Fed’s move a risk management-style rate cut. It shows the Fed is putting more emphasis on the softening in the labor market as they trimmed rates while forecasting more cuts in 2025. It makes sense that more rate cuts are expected as monetary policy works with a lag and labor market statistics are a lagging economic indicator. The weakening labor market will have a deleterious impact on inflation, so the Fed is willing to wait out sticky inflation. There was a significant dispersion in policy views by this Fed for 2026, which probably means more volatility in financial markets next year. Now, we are all back to data dependency, starting with tomorrow’s initial jobless claims.” 

Max Stainton, senior global macro strategist at Fidelity International 
“As expected, the Federal Reserve (Fed) cut the Fed funds rate by 25bps, bringing the target range to 4.0-4.25 per cent. Additionally, the statement, which saw downside labour market concerns reiterated, and inflation rated as only “somewhat elevated“, demonstrates the extent to which this Fed has pivoted from worrying about upside inflation risks, to moving to guard against downside labour market risks. This pivot in the reaction function was underlined by the Summary of Economic Projections (SEP) dots which validated market pricing of two more interest rate cuts this year. Looking ahead, we see the probability of a discontinuous reaction function at the Fed as much more elevated than normal. While we expect two more cuts followed by a pause from the Powell Fed this year, looking ahead to 2026 and the prospect of a new Fed chair from May 2026 onwards sets up the high likelihood that we see additional interest rate cuts after May 2026 that are not consistent with a 2 per cent inflation target.”

Peiqian Liu, Asia economist, Fidelity International
“Most Asian central banks have eased rates slowly in recent quarters to boost domestic growth. But with the Fed holding steady and the yield gap widening, concerns over currency stability have limited aggressive rate cuts despite the tepid domestic growth dynamics. Yesterday, the Federal Reserve lowered policy rates by 25bps as it shifted its focus from the stickiness of inflation to signs of weakness in the labour market. Although the path to further cuts remains uncertain and data dependent, the easing and further expectations of more to come may have eased some concerns on US yield differentials and prompt further easing in some Asian countries, particularly the economies facing greater domestic headwinds. The overall policy stance across the region will likely become more accommodative but differences will persist due to varying economic conditions, such as domestic inflation trends, the degree of payback from exports frontloading ahead of tariffs and the exposure to the evolving growth dynamics in major economies particularly the US and China.

“Today, the People's Bank of China (PBoC) maintained its benchmark 7-day reverse repo rate at 1.4 per cent during its daily open market operations. China’s domestic recovery remains uneven and we anticipate that the resumption of Fed easing could provide more room for the PBoC to maneuver as it addresses multiple mandates including supporting growth, restoring inflation and maintaining currency stability.”

Richard Flax, chief investment officer at Moneyfarm, a European digital wealth manager
"In line with broad expectations, the Federal Reserve delivered its first rate cut of 2025, easing the benchmark rate by 25 basis points. This marks the Fed’s first cut since initiating the most aggressive tightening cycle in four decades, as it seeks to support a weakening labour market, as jobless claims have now risen to their highest level in four years. This is why the Fed has chosen to look past the inflation overhang, despite consumer prices rising by 2.9 per cent year-on-year in August. The rate cut is likely to boost short-term sentiment for risk assets, with the stock market expected to benefit. For US households and businesses, today’s move offers modest relief, but the broader message is one of caution rather than a pivot towards rapid easing.”

Isaac Stell, investment manager at Wealth Club
“The Federal Reserve has lowered interest rates by 0.25 per cent, marking its first rate cut since December 2024 amid mounting political pressure. In a highly anticipated meeting, the Fed chose to ease rates in an effort to support a weakening labour market. The move comes against a backdrop of intense political scrutiny, with both Chair Jerome Powell and Governor Lisa Cook facing sustained rhetorical and legal challenges making today’s decision feel all the more political.

“The justification behind the cut focuses on employment rather than inflation. The labour market has been deteriorating more rapidly than expected, with the unemployment rate recently reaching its highest level since October 2021. Despite inflation remaining comfortably above the Fed’s target, signs of strain in the jobs market were compelling enough to prompt action. However, the decision is unlikely to satisfy the President who made it publicly known he expected a “big cut”, not the 0.25 per cent the Fed has opted for today. Unfortunately, the timing and circumstances of today’s move make it appear more like a concession rather than a strategic policy shift, potentially fuelling concerns about the Fed’s independence.”

Edmond de Rothschild
“With a 0.25 per cent cut in its key interest rates, the US Federal Reserve (Fed) has given financial markets what they have been waiting for the past few months: the resumption of US monetary easing after a nine-month hiatus, following a 100 basis point reduction in its key interest rate between September and December 2024. Indeed, while most central banks are already well underway in their cycle of rate cuts, the Fed has kept its rates unchanged in 2025 since inflation has returned below 3 per cent.”