25 Basis Points Cut—The Federal Reserve’s Rate Reduction and Subsequent Asset Performance

On September 18, the Federal Open Market Committee announced a 25-basis-point reduction in the federal funds rate, lowering the target range to 4.00%–4.25%. This move represents the first rate cut since December 2024.

At his post-meeting press conference, Chair Jerome Powell emphasized that monetary policy is not on a preset course and that the Fed retains flexibility to adjust as conditions evolve. He described today’s action as a “risk-mitigation” measure prompted by slower economic growth and rising labor-market uncertainties. Powell made clear that the decision to reduce rates by 25 basis points reflected a careful assessment of changing risks rather than broad support for a larger 50-basis-point cut. Future adjustments, he noted, will remain data-dependent, and the full economic impact of this easing remains to be seen.

Immediately after the announcement, U.S. equities edged higher, with the Dow Jones Industrial Average gaining as much as 1.1%, the Nasdaq Composite turning positive, and the S&P 500 rising up to 0.27%. However, during Powell’s remarks, the major indices retraced those gains. By the close, the Dow stood up 0.57%, while the Nasdaq fell 0.33% and the S&P 500 declined 0.10%.

The U.S. Dollar Index experienced notable volatility, dipping as much as 0.44% to 96.2179 before rebounding to a gain of 0.37% at 96.999 within an hour. It ultimately closed higher by 0.40% at 97.0307.

Most commodity prices slipped on the day. Spot gold in London retreated over USD 60 from its intraday peak, settling at USD 3,658.89 per ounce—a loss of 0.83%. Spot silver fell as much as 3.39% before closing down 2.14% at USD 41.638 per ounce. Industrial metals on the London Metal Exchange, including copper and zinc, and energy benchmarks such as WTI and Brent crude each registered declines exceeding 1%.

A review of Federal Reserve rate-cut cycles since 2000 identifies four distinct easing periods: January 2001–June 2003, September 2007–December 2008, August 2019–March 2020, and the current cycle beginning September 2024. Each episode corresponded with either a slowdown in economic activity or reduced inflationary pressures, though their specific catalysts varied.

The initial easing phase unfolded after the collapse of the tech bubble and the 9/11 attacks. The Fed drove rates down from 6.5% to 1%, stabilizing financial markets and spurring GDP growth from 1.7% in 2001 to 3.9% in 2004. During the 2007–2008 crisis, fed funds were cut to near zero and quantitative easing was launched, yet U.S. equities still plunged—by 38.49% in the S&P 500 and 33.84% in the Dow. Rates remained at zero until December 2015.

In mid-2019, the Fed delivered three successive cuts totaling 75 basis points, then in March 2020 convened an emergency session to slash rates by 100 basis points to 0%–0.25% as the COVID-19 pandemic hit, triggering a market collapse with all three major indexes dropping over 11% on March 16.

The current cycle began on September 19, 2024, with a 50-basis-point cut in response to cooling inflation and a weakening labor market, followed by 25-basis-point reductions in November and December. From January through August 2025, rates were held at 4.25%–4.50% until today’s action.

Historical data reveal that across the 32 Fed rate-cut announcements since 2000, the Dow and S&P 500 have each fallen 18 times on the day of the cut, while the Nasdaq has exhibited an even split between gains and losses. In the first five to twenty trading days post-cut, all three indexes have more often advanced than declined; however, over sixty trading days the Dow and S&P 500 tend to be down more frequently, whereas the Nasdaq generally maintains a positive trajectory. This pattern suggests that growth-oriented technology stocks outperform more cyclical value shares in the early stages of an easing cycle.

When examining entire easing cycles, the first three episodes each saw significant equity drawdowns—exceeding 30% during the 2007–2008 period. By contrast, the current cycle has not triggered a broad valuation pullback, likely reflecting both the absence of a systemic crisis and the Fed’s objective of achieving a “soft landing.”

In China’s A-share market, the day following a Fed rate cut has historically produced widespread declines. Among the previous 31 incidents, the Shanghai Composite fell 17 times with an average loss of 0.25%, and the Shenzhen Component declined 17 times by an average of 0.28%. Sector analysis shows that only oil and petrochemicals have delivered positive average returns of 0.11%, while basic chemicals, information technology, social services, home appliances, and telecom have recorded modest drops under 0.15%, and industries such as food and beverage, building materials, and electronics have suffered average losses exceeding 0.4%.

Gold has consistently been the standout performer among commodities during rate-cut cycles. The current easing phase, beginning September 18, 2024, has seen spot gold advance 48.94%. In contrast, industrial metals like LME copper and energy products such as WTI crude have generally weakened in the face of global growth headwinds.

The U.S. Dollar Index tends to weaken or remain subdued over rate-cut periods, as lower yields diminish the relative appeal of dollar-denominated assets and prompt capital to seek higher returns elsewhere. Research from Bank of China Securities underscores this dynamic, noting that Fed easing reduces the attractiveness of U.S. Treasury yields and drives capital flows out of dollar assets, exerting downward pressure on the currency.

Looking ahead, several brokerages anticipate that China’s equity markets and Hong Kong stocks may outperform during this cycle. Huaxin Securities argues that deeper, more prolonged easing and renewed liquidity will foster favorable conditions for risk assets, benefiting both A-shares and the Hong Kong market. Bank of China Securities highlights that Hong Kong equities stand to gain from both global liquidity shifts and a domestic earnings inflection, with scarce technology names and high-dividend state-owned enterprises emerging as potential core allocations. In the A-share arena, small-cap growth stocks and leading technology firms are expected to outperform amid a weakening U.S. dollar and RMB asset revaluation.