Federal Reserve Cuts Rates, But Markets React to Powell’s Cautious Warning
October 29, 2025 — The Federal Reserve delivered an expected quarter-point interest rate cut today, but Chair Jerome Powell’s accompanying message sent shockwaves through financial markets, triggering volatility across mortgages, bonds, stocks, and cryptocurrencies.
The Fed’s Move
In a 10-2 vote, the Federal Reserve reduced its benchmark interest rate by 25 basis points, bringing the federal funds rate to a target range of 3.75% to 4.00%. The central bank also announced it will end quantitative tightening on December 1, 2025, marking a significant shift in monetary policy.
Powell Pumps the Brakes on Expectations
Despite the rate cut, Fed Chair Jerome Powell struck a decidedly cautious tone during his press conference, warning that further reductions in December are “far from a sure thing.” Powell pointed to stubborn inflation running at 3% year-over-year—well above the Fed’s 2% target—and signs of cooling in the labor market as reasons for a measured approach going forward.
This hawkish messaging caught investors off guard, triggering what traders call a classic “buy the rumor, sell the news” reaction across multiple markets.
Economic Reality Check
The U.S. economy expanded at just 1.6% during the first half of 2025, a notable slowdown from the 2.4% growth rate in 2024. Unemployment currently sits at approximately 4.3%, reflecting a gradual cooling in the job market that gives the Fed room to cut rates—but not aggressively.
Market Fallout: Winners and Losers
Mortgages: Homebuyers Hit Hard
In a counterintuitive twist, mortgage rates actually increased following the Fed’s rate cut. Mortgage-backed securities sold off sharply after Powell’s remarks, driving mortgage rates up by 25 to 37.5 basis points during the trading session. Prospective homebuyers hoping for relief were instead met with higher borrowing costs.
Bonds: Yields Climb
The 10-year Treasury yield rose above 4.05% as investors recalibrated their expectations for future rate cuts. Bond markets are now pricing in a slower easing cycle than previously anticipated.
Stocks: A Tale of Two Markets
Equity markets delivered a mixed performance. The Dow Jones Industrial Average posted modest losses, reflecting broader market uncertainty. However, technology stocks showed resilience, with semiconductor giant Nvidia leading gains that helped support the S&P 500. The divergence highlights how big tech continues to dominate market performance even as smaller stocks struggle.
Gold: Safe Haven Shines
Gold prices rallied to near $4,030 for December contracts, as investors sought safety amid the uncertainty over the Fed’s future path. Precious metals benefited from expectations of continued monetary accommodation, despite Powell’s cautious rhetoric.
Crypto: Bloodbath
Cryptocurrency markets suffered sharp declines and significant liquidations. Bitcoin plunged as leveraged positions unwound in response to Powell’s guidance. The sell-off demonstrates crypto’s continued sensitivity to Federal Reserve policy shifts and reduced certainty around the monetary easing trajectory.
What This Means Going Forward
The Federal Reserve’s message is clear: while it’s willing to cut rates in response to economic conditions, it won’t be rushed into aggressive easing with inflation still elevated. Investors should expect a data-dependent approach with substantial uncertainty around the frequency and magnitude of future rate adjustments.
For everyday Americans, this means mortgage rates may not decline as quickly as hoped, while savers could continue to benefit from higher interest rates on deposits. Market volatility is likely to persist as economic reports resume following the recent government shutdown that delayed critical data releases.
The Fed’s next meeting in December will be closely watched to see whether Powell’s cautious stance translates into a pause in rate cuts or whether incoming economic data justifies continued easing.