In last week’s letter, I noted that this FOMC meeting had the potential to ease uncertainty and bring much-needed clarity around the pace and timing of future rate cuts. Now that the announcement is behind us—and following an initially strong market reaction—we may indeed be gaining the visibility needed for equities to press higher. Still, one day does not make a trend. Markets often experience heightened volatility as they digest Fed decisions. Even so, early reactions can offer meaningful clues about leadership moving forward, and this week’s response was an encouraging start.
The Committee voted to lower rates by another 25 basis points, though the decision was not unanimous. Three members dissented—two preferring to hold rates steady, and one advocating for a larger 50-basis-point cut. Despite the disagreement, the Fed has now delivered 75 basis points of easing over the past three meetings, consistent with what Chair Jerome Powell called a “balanced approach” to today’s evolving risks.
That balanced approach reflects an unusually complex backdrop. For the first time in Powell’s tenure, risks are pulling in opposite directions across the Fed’s dual mandate: inflation risks remain tilted upward, while employment risks have increased to the downside. This makes policymaking more nuanced than simply “fighting inflation” or “supporting growth.”
The labor market illustrates this tension well. Layoffs and hiring remain low—so the job market is not deteriorating outright—but both households and employers report weaker perceptions of job availability and greater difficulty finding qualified workers. In other words, the labor market is less dynamic than it was earlier in the cycle. The most recent official release (from September) showed the unemployment rate rising to 4.4% and job gains slowing meaningfully from earlier in the year.
On the inflation front, progress continues even though price pressures remain above target. Total and core PCE inflation both rose 2.8% over the 12 months ending in September. Goods inflation has picked up, driven largely by tariffs, which Powell described as a one-time price level shift, not the start of a renewed inflation trend. Meanwhile, services inflation continues to cool, helping reinforce the broader disinflation narrative.
Despite these crosscurrents, the growth outlook remains constructive. Consumers continue to spend, businesses continue to invest, and although the temporary federal government shutdown weighed on activity this quarter, that drag is expected to reverse next quarter. The Fed’s latest Summary of Economic Projections (SEP) now calls for:
2025 GDP growth: +1.7%
2026 GDP growth: +2.3%
Both estimates are slightly stronger than in September, suggesting policymakers see a foundation for a more durable expansion.
The Fed also announced several operational adjustments intended to keep money markets functioning smoothly—steps Powell emphasized are not changes to policy stance. The Fed will restart short-term Treasury purchases (mainly T-bills) with an initial $40 billion in the first month, tapering as conditions stabilize. These purchases help maintain ample reserves and keep short-term rates anchored within the target range. The Fed also removed the aggregate limit on its standing repo facility, expanding its ability to supply liquidity during periods of stress. Together, these measures support the plumbing of the financial system and help ensure interest rates behave as intended.
While the current environment appears supportive of further upside, one strong day alone is not enough to declare victory—especially given the volatility that often follows FOMC meetings. But early signals can be telling, and yesterday’s market action delivered exactly what you would hope to see in a healthy bull trend. Leadership was broad, extending beyond the usual suspects into more cyclical and higher-beta areas.
A few developments stand out:
Small caps and microcaps closed at all-time highs, hardly the behavior of a risk-averse market.
The Industrials sector also broke out after consolidating sideways through much of the recent volatility.
The Dow Jones Transportation Index continued its catch-up move with the Dow Jones Industrial Average, bringing both within 2% of its all-time high. For Dow theorists, this alignment between “makers” (Industrials) and “movers” (Transports) is historically a constructive sign.
Meanwhile, both the NASDAQ and S&P 500 remain within the same striking distance of their own highs, reinforcing the idea of a broad, resilient uptrend.
Importantly, this strength is not limited to the U.S.—a point that may surprise investors given ongoing trade-related headlines. Despite solid domestic performance, the S&P 500 is actually the laggard among G7 equity markets year-to-date. And perhaps the most meaningful technical development of the day was the All-World Index pushing to new all-time highs, highlighting that the current rally is part of a global, synchronized uptrend rather than a narrow or isolated one.
Taken together, these developments suggest that stepping away from strength may be misplaced. Instead, the alignment across sectors, asset classes, and global markets strengthens the case that this rally may still have room to run.
The views stated in this piece are not necessarily the opinion of Cetera Wealth Services, LLC and should not be construed directly or indirectly as an offer to buy or sell any securities. Due to volatility within the markets, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.