Fed Sends Mixed Hawkish-Dovish Signals; U.S. Treasury Yields and Dollar Stage V-Shaped Rebound

Market Overview

The Federal Reserve cut rates by 25 basis points as expected, but its statement and dot plot sent mixed hawkish-dovish signals, triggering sharp volatility across global assets. On the dovish side, the Fed acknowledged a weakening labor market and projected two more rate cuts this year. On the hawkish side, it highlighted upside risks to inflation, while Chair Powell downplayed the likelihood of a larger 50-basis-point cut.

Market performance was uneven. The Dow Jones Industrial Average closed higher, led by financials, while mega-cap tech stocks dragged the Nasdaq and S&P 500 lower. U.S. Treasuries and the dollar staged a classic V-shaped reversal. Both yields and the dollar index initially dropped after the decision but quickly rebounded to finish higher, as markets interpreted the stance as “not dovish enough.” Gold, which hit another record high intraday, retreated sharply under pressure from the rebound in yields and the dollar, falling more than 1.6% from its peak.

Hot Topics to Watch

Fed delivers 25 bps rate cut, stresses downside risks to employment

Trump-appointed Governor Milan cast the lone dissenting vote, favoring a 50 bps cut. The median dot plot showed just one cut expected next year. Nine members projected two additional cuts this year, though still short of a majority. The Fed also revised GDP forecasts higher for this year and the next two years, while raising PCE inflation projections for 2026. According to the “New Fed Wire,” concerns over labor market weakness outweighed inflation risks, justifying the smaller rate cut trajectory.

France downgraded to lowest credit rating in history

Fitch Ratings cut France‘s sovereign rating from AA- to A+ on Friday, marking the lowest rating in its history. The downgrade reflects deepening political and fiscal challenges that have left the eurozone’s second-largest economy struggling to manage its mounting debt burden.

Key Data to Watch

20:30 GMT+8 – U.S. Initial Jobless Claims (week ending Sept. 13), Philadelphia Fed Manufacturing Index (September)

22:00 GMT+8 – U.S. Conference Board Leading Economic Index (August, MoM)