Updated Fed forecasts and a signal on the “neutral” rate

The US stock market ended Wednesday with solid gains after the Fed cut interest rates and simultaneously moved to increase liquidity in the system. The S&P 500 added almost three quarters of a percent and reached a six-week high, the Nasdaq 100 climbed to a five-week high, and the Dow posted its best result in several weeks. At the start of the session, traders were worried about a “hawkish” cut, but Powell’s tone turned out softer than expected, which became the trigger for a late-day rally.

The Fed lowered the target range for the federal funds rate by 25 bps to 3.50–3.75 percent, with three committee members voting against the cut. In its statement, the central bank noted slower job growth and increased risks for the labor market, as well as the fact that inflation has moved higher this year but remains close to target in the medium term. At the same time, the Fed announced plans to start buying $40 billion of Treasury bills per month from December 12 to rebuild banking system reserves after the balance sheet tightening phase.

The updated dot plot showed the median forecast for the policy rate at the end of 2026 around 3.375 percent, which implies only one additional 25 bp cut compared with current expectations. In other words, the Fed is not promising a long cycle of aggressive easing; instead, it hints at moving into a neutral range and then pausing.

The economic projections look moderately optimistic. The estimate for US GDP growth in 2025 has been raised to 1.7 percent, and for 2026 to 2.3 percent. For core PCE inflation, the projections were nudged slightly lower: to 3.0 percent for 2025 and 2.5 percent for 2026. This combination of stronger growth and slightly lower expected inflation is interpreted by markets as a comfortable scenario: the economy remains on a growth path, while the need to keep rates too high diminishes.

Additional support for the market came from labor cost data. The Q3 employment cost index rose 0.8 percent quarter-on-quarter, slightly below the consensus forecast. The slowdown in wage growth eases concerns about second-round inflation effects and strengthens the Fed’s position, allowing a softer stance without risking a new inflation spike driven by labor costs.

The mortgage market showed a mixed picture. The overall MBA mortgage applications index rose almost 5 percent on the week, indicating a pickup in interest, but purchase applications fell while refinancing jumped. The average 30-year mortgage rate barely changed, staying near 6.33 percent. This confirms that the housing market is adapting to the new rate environment but remains sensitive to further moves in yields.

At the single-stock level, the day was marked by a strong rotation in favor of the technology and semiconductor sector. Shares of Micron and Marvell jumped more than 4 percent, while Applied Materials and Qualcomm also advanced, along with a broad group of chip and equipment makers. Hopes for resilient semiconductor demand and solid margin prospects amid macro stabilization continue to support investor interest in the group.

In the online grocery delivery segment, the picture was the opposite. Amazon’s announcement that it is expanding same-day delivery of perishable groceries to more than 2,300 cities and towns pressured competitors. Shares of Maplebear (Instacart) and Uber fell sharply, by more than 5–6 percent, and DoorDash also closed with a notable loss. The market is pricing in intensifying competition and a possible shift in e-grocery market share toward the larger player.

The corporate backdrop remains strong. The Q3 earnings season is almost over, and the numbers look better than expected: the vast majority of S&P 500 companies beat profit forecasts, and overall earnings growth for the index ended up almost twice as high as initial estimates. This creates a comfortable foundation for equities amid a gentle turn in monetary policy.

Photronics stood out, with its shares surging nearly 50 percent after the company reported results that significantly beat expectations and issued a strong outlook for the next quarter. GE Vernova’s stock also posted double-digit gains after the company announced an expansion of its share buyback program to $10 billion and effectively doubled its quarterly dividend to 50 cents per share.

Other notable stories included EchoStar and Middleby, which gained momentum on the back of rating upgrades from major investment banks, as well as AIG, whose shares rose on news that Chubb had expressed interest in a possible takeover. At the same time, AeroVironment and GameStop came under pressure due to reduced earnings guidance and weak sales dynamics, while Netflix corrected lower after Paramount said its $30-per-share offer to Warner Bros. Discovery shareholders was superior to Netflix’s proposal.