The Federal Open Market Committee (FOMC) reduced the federal funds rate by 25 basis points, marking the third consecutive meeting for such a decision. The rate now stands at 3.50% to 3.75%, a level not seen since September 2022.<\/p>\n
There was division within the committee, with three members dissenting. Stephen Miran wanted a 50-basis point cut, while Austan Goolsbee and Jeffrey Schmid opposed any reduction.<\/p>\n
Alongside the rate decision, the FOMC published the dot plot in its quarterly summary of projections. The plot indicated no alterations from the previous quarter, forecasting only one rate cut in 2026 to 3.44% and another in 2027 to 3.1%.<\/p>\n
Stocks had mixed reactions following the announcement, with the Nasdaq dropping by 70 points. The S&P 500 rose by 9 points, and the Dow Jones increased by approximately 290 points.<\/p>\n
The FOMC highlighted rising employment risks and ongoing inflation concerns. To maintain adequate reserve supply, purchases of short-term Treasury securities will commence. Economic growth projections have been adjusted upwards to 2.3% for 2026 and 2.0% for 2027. Inflation and unemployment rate expectations showed slight improvements for 2027.<\/p>\n
The Federal Reserve has now cut interest rates by 25 basis points for the third time in a row, putting the new rate at a level we haven’t seen since September 2022. This move was largely expected, but the details behind it create new opportunities. We must now focus on the conflict between this immediate cut and the Fed’s cautious long-term outlook.<\/p>\n
The split vote on the committee and the cautious dot plot have already caused a reaction in the volatility markets. We have seen the VIX index, which measures expected volatility, jump from around 14 to over 16.5 since the announcement. This suggests that traders should consider buying options like straddles or strangles on major indices to profit from the increased price swings we expect in the coming weeks.<\/p>\n
The most significant piece of information is the dot plot, which signals a much slower pace of rate cuts in 2026 and 2027 than the market had priced in. Before this meeting, interest rate futures suggested a strong possibility of at least two cuts next year. Traders should now consider positioning for a flatter yield curve, potentially by selling futures contracts tied to the Secured Overnight Financing Rate (SOFR) for late 2026 to bet against these more aggressive rate-cut expectations.<\/p>\n
We saw a clear divergence in the market’s reaction, with the Dow Jones rising while the tech-heavy Nasdaq fell. This indicates a rotation from growth stocks, which are hurt by the prospect of higher-for-longer rates, to value stocks that benefit from a stronger economy and immediate lower borrowing costs. This is similar to the pattern we saw in late 2023 and suggests a pair trade could be effective: using call options on industrial or financial ETFs while buying puts on technology sector funds.<\/p>\n
The Fed’s statement about rising downside risks to employment makes upcoming economic data even more critical. We will be closely watching the next Non-Farm Payrolls report, especially after the November 2025 number came in slightly below expectations at 155,000 jobs. Any sign of further labor market weakness could force the Fed to abandon its cautious stance, making options trades placed just before these data releases particularly potent.<\/p>\n
Finally, the committee\u2019s plan to purchase shorter-term Treasury securities is an important detail that should not be overlooked. This action is designed to maintain ample liquidity in the banking system and will help anchor short-term borrowing costs. This tells us the Fed is focused on preventing any near-term market stress, supporting the case for stability at the front end of the yield curve even as longer-term rates remain uncertain.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" FOMC cuts rates again; committee divided. Stocks mixed. Growth raised, inflation concerns persist; Treasury purchases planned.<\/p>\n","protected":false},"author":62,"featured_media":17022,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-36601","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/36601","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=36601"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/36601\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17022"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=36601"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=36601"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=36601"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}