Interpreting the Fed’s September Rate Cut
This week, the Federal Reserve lowered its benchmark interest rate by 0.25 percentage points—the first cut since December 2024—bringing the federal funds rate to a range of 4.00% to 4.25% [1]. The decision reflects a nuanced balancing act: addressing a slowing labor market while remaining vigilant about inflationary pressures.
In his post-meeting remarks, Fed Chair Jerome Powell emphasized that labor demand is softening, but supply-side constraints continue to offset weakness. He stated that recession risks remain limited for now, and the Fed is taking proactive steps to help support economic momentum [1] [2] [3]. Powell reaffirmed the Fed’s commitment to data-driven policy and its independence from political influence, even as external pressures mount.
From an investment perspective, this moment offers a valuable reminder of two core investment principles at Savant Wealth Management:
1. Markets Work
Markets are forward-looking mechanisms. They digest and price in expectations about future economic conditions, policy decisions, and corporate performance. The Fed’s rate cut was widely anticipated, and markets responded accordingly. The Dow Jones Industrial Average reached an all-time high, while the S&P 500 delivered mixed performance as investors recalibrated their outlook [4] [5].
This reinforces our belief that trying to outguess short-term market movements is generally not recommended. Instead, we trust in the collective wisdom of market participants and focus on long-term fundamentals. By the time news breaks, markets have moved, often in anticipation for weeks or months.
2. Diversification Is Your Friend
Uncertainty is a constant in investing, and it is the price we pay for having higher returns on our investments. Whether it’s the trajectory of interest rates, geopolitical tensions, or unexpected economic data, the future is inherently unknowable. Our research suggests that diversification remains one of the most effective tools to manage this uncertainty.
In light of the Fed’s decision, some areas may benefit more than others—particularly rate-sensitive areas like real estate or utilities. While it’s tempting to focus solely on interest rates, other forces such as the ongoing buildout and adoption of artificial intelligence may prove more influential. Rather than chase performance, we advocate for broad exposure across many different asset classes and geographies. This approach can help mitigate risk and capture opportunity wherever it arises.
Looking Ahead
The Fed signaled that further rate cuts may follow if economic conditions warrant. Investors should expect continued volatility as markets digest evolving data. But through it all, our evidence-based philosophy remains unchanged: trust the markets, diversify intelligently, and stay disciplined. Research shows that the proverbial crystal ball is broken, so sticking with these fundamental principles is key to successful investing.
References
[1] Federal Reserve lowers interest rates by 0.25 percentage points in …
[2] Speech by Chair Powell on the economic outlook … – Federal Reserve Board
[3] Live: Fed Rate Decision, Powell News Conference
[5] Stocks, Bonds Rise As Data Seal September Fed Cut
This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation. Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only.
C. Zach Ivey
Chief Investment Officer
CFA®, CFP®, MBA