Good morning, Traders & Quants! Markets closed modestly lower on Fed day, even as the FOMC delivered exactly what investors expected: a 25 bp cut to 4.00–4.25%. The small-cap complex swung hardest, financials and staples outperformed, while tech and industrials trailed. Treasuries dipped below 4.0% after the statement, only to finish back near 4.07% following Powell’s presser. The dollar caught a bid. WTI eased, snapping its recent supply-driven run.

For all the anticipation, the outcome landed in the middle. The cut was priced, the dot plot leaned dovish, but Powell was careful not to accelerate expectations. Traders now face the challenge of reading between the lines of a Fed that is easing but still sensitive to inflation.

On the tape, small caps initially surged, high beta to short-term cuts, but rolled over as yields climbed back in Powell’s Q&A. Bank stocks hit fresh 52-week highs before fading. Retail sales offered a modest silver lining, notching a third monthly gain, though housing starts and permits slipped, leaving the mortgage-rate decline as a potential stabilizer.

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Futures are modestly higher this morning, with Europe and Asia broadly firmer after the Fed’s cut. The focus shifts to the Bank of England, where rates are expected to remain unchanged at 4%, though investors are watching for a slower pace of gilt sales after recent volatility. Norway has already followed with a 25 bp cut. In Asia, Chinese equities surged to a 10-year high on news of tighter restrictions on Nvidia, lifting local chipmakers.

The near-term question for U.S. markets is whether Powell’s “insurance cut” sets up a pair of reductions at the October and December meetings, as history often suggests. The labor market has cooled but remains resilient, while tariffs continue to pressure inflation. That mix keeps the Fed in a cautious easing mode. Futures imply another two cuts this year, leaving little margin for upside surprises in jobless claims or inflation data.

China has sharpened its military stance against the U.S., putting its nuclear triad on display for the first time at a September 3 parade and sending its newest aircraft carrier through waters near Taiwan. At the Xiangshan security forum in Beijing, Defense Minister Dong Jun warned U.S. officials that “containment will not succeed.” The rhetoric underscores Beijing’s intent to project strength even as trade talks with Washington continue.

Trump’s frustration with Israeli Prime Minister Netanyahu has bubbled up behind closed doors, particularly after Israeli strikes in Qatar threatened fragile peace talks with Hamas. Yet despite the private fuming, the U.S. president has not shifted public policy, continuing to back Israel militarily and diplomatically. The relationship remains tight, even as Netanyahu’s hard-line tactics complicate Washington’s wider regional aims.

Fed politics were inescapable. Stephen Miran, newly sworn in, dissented in favor of a 50 bp cut, while Lisa Cook held her seat thanks to an appeals ruling. Powell’s term ends in May, and the succession contest is already coloring the narrative. Consensus is intact for now, but the prospect of a more divided board into 2026 looms.

For Powell, this was another instance of cutting not because recession is here, but to keep it at bay. He framed the risks evenly, softening labor markets vs sticky tariffs-driven inflation, but emphasized there is “no risk-free path.” History shows such insurance cuts often come in pairs, which explains why traders are already leaning into October and December.

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Decision day gave us less drama than buildup, but the stakes haven’t gone away. Powell threaded the needle: easing without promising a sprint. For positioning, it means trading the path, not the print. If labor weakens, cuts come faster. If inflation lingers, the Fed drags its feet. Either way, markets will hang on every word of the next two meetings.