Fed cuts rates for first time in '25, with caveat

Central bank warns about sticky inflation

- DAVIDE BARBUSCIA SUZANNE MCGEE

Investors look set to face a volatile few months ahead after the Federal Reserve resumed interest rate cuts and opened the door to further easing but tempered its message with warnings of sticky inflation, sowing doubt over the pace of future policy adjustments.

Some investors are now less certain that a rapid shift to lower borrowing costs will materialise, potentially dampening optimism that stocks and bonds would get a strong lift from easier policy. Adding to the uncertainty was a wide variety of views within the Fed on the future path of rates.

"We've had a rather cautious, not necessarily fully defensive... view here for a while," which was "reinforced" by the Fed's message, said Larry Hatheway, global investment strategist at the Franklin Templeton Institute.

Hatheway added that many in the market would likely be slightly disappointed at the lack of clarity and direction from the Fed, which stopped short of endorsing market expectations for a clear string of rate cuts, emphasising a meeting-by-meeting, data-dependent approach.

At Wednesday's meeting, the Fed lowered its policy rate by 25 basis points to a range of 4%-4.25%, its first cut since December, and signalled a gradual easing cycle in response to mounting labour market concerns. At the same time, Fed Chair Jerome Powell highlighted "a challenging situation" for policymakers, noting that risks to inflation were tilted to the upside and risks to employment to the downside.