In a landmark decision, the Federal Reserve has cut interest rates by 25 basis points, citing a deteriorating labor market as the primary cause. This move is historic, marking the first time in over 30 years that the Fed has eased policy while Core PCE inflation is still high at over 2.9%. The immediate market reaction saw the US Dollar fall to its weakest point since February 2022.

The decision reveals a major pivot in the Fed's strategy, placing its employment mandate ahead of its inflation target and pointing towards a period of stagflation. While Fed officials appear divided on the path forward, the market is now pricing in several more rate cuts by 2026. Notably, this rate cut comes as the S&P 500 sits at a record high. Historical data shows that in the last 20 similar instances, the stock market rose by an average of 13.9% over the following year.