Dow Jones, S&P 500, NASDAQ Composite and Dollar Index: How they reacted to Fed rate cut and what’s next?
The Dow Jones Industrial Average managed to close in green on Wednesday amid high volatility after the US Federal Reserve meeting outcome. The Fed cut rates by 25 basis points (bps), in line with the market expectation. Following which, S&P 500 and NASDAQ Composite indices were down for the day.
On the other hand, the dollar index and the Treasury yields bounced back well from their lows on the back the Fed’s cautious tone.
Front running rate cuts
The 25-bps rate cut in this meeting was largely factored in the market. However, the Fed’s economic projection showed that another 50-bps rate cut is possible for the rest of the year. From its previous projections in June, this gives room for an additional 25-bps rate cut for this year for the market. But accordingly, the interest rate projections for the next two years have been brought down by 25-bps each. As such, what the Fed now has done is just kind of front running on its future rate path.
Focus shift to job market
“The marked slowing in both supply and demand of workers is unusual. For now, we are acting to the slowdown in the job market”. These comments from the Fed Chairman Jerome Powell clearly indicates that the central bank is more worried now about the job market. Powell said that the change in immigration is one of the major reasons for the slowdown in the supply side of the job market.
It is now evident from yesterday’s press conference that the job market is going to influence the Fed more in its policy decision now than inflation, at least in the next few months.
The Fed projects the unemployment rate to be at 4.5 per cent this year, unchanged from its previous projection.
Tariff impact
While acknowledging that the inflation on goods has picked up on the back of tariffs, the central bank expects it to be short-lived as it is likely to be a one-time shift in the prices. Inflation is likely to become a major concern only if it continues to remain persistently higher.
The Fed expects the US Personal Consumption Expenditure (PCE), its inflation gauge, to be at 3 per cent this year, unchanged from its previous forecast made in June. However, for 2026, the PCE projection has been revised higher to 2.6 per cent from the forecast of 2.4 per cent made in June.
Dollar recovers
The US dollar index (97.20) has risen back from its low of 96.22 that it touched immediately after rate cut announcement. If this bounce sustains, there are good chances to see a rise to 97.70-98 in the next few days.
From a long-term perspective, the region around 96 is a very strong support which is holding well for now. That keeps the chances alive for the dollar index to revisit 100 levels in the coming months. The level of 98.50 is a crucial resistance. A break above it will clear the way to see 100 on the upside.
Equities
Although there was a mixed reaction on the equities front, the broader picture remains positive for the US benchmark indices.
The Dow Jones (46,018) can target 46,800 in the short term. Immediate support is around 45,500.
The S&P 500 (6,600) has a strong support in the 6,550-6,500 region which has limited the downside well after the Fed meeting outcome. That keeps the door open for the S&P 500 index to see 6,700 and higher levels going forward.
The NASDAQ Composite (22,261) can rise to 22,800. Support for the index is at 22,000-21,800.
Published on September 18, 2025