Fed Cuts 25 bps: A Political Move, and the Market Calls It “No News”

A Predictable Cut with Limited Systemic Impact

The Federal Reserve delivered a 25 basis point rate cut as widely expected.
The conditions for a classic easing cycle were not present, making this a political move rather
than a materially economic one. The cut neither expands the Fed’s strategic room for 2026 nor
meaningfully shifts credit conditions.

Market Response: Up, Down, and Back to Pre-News Levels and lower

The futures markets reacted instantly: a brief spike upward, an equally brief pullback,
and then a return to the pre-announcement range.
The session remained static, confirming that the news was already priced in.
Effectively, this was “no news” for the market.

Short-Term Liquidity: Lower Yields Ahead

One area where yesterday’s cut will be felt quickly is in short-term liquidity yields.
The reduction of the policy rate filters into consumer-facing savings instruments,
many of which were already paying interest well below inflation.

• Checking accounts: National average interest remains just 0.07% and may fall further.
• Savings accounts: Stuck around 0.40%, offering minimal return.
• High-yield savings: Approximately 4% on average, with minor variation among providers.
• Money market accounts: National average remains near 0.58%.
• 12-month CDs: Currently around 1.64%.

These returns are already deeply negative in real terms.
Yesterday’s rate reduction will push them even lower, accelerating the erosion of
returns on idle liquidity.

Why Falling Liquidity Yields Are a Positive Signal

Although low liquidity yields are often framed negatively, this environment offers two
meaningful advantages:

1. Opportunity for Consumers

With discounts rising and savings yields falling, consumers have an incentive to move funds
away from dormant liquidity toward durable goods purchases.
This supports consumption and stabilizes economic momentum.

2. Opportunity for Markets

Lower money-market and deposit yields reduce the appeal of cash, directing flows toward
short-term equity exposure in an environment that remains structurally long-biased.
This contributes to continued support for the equity markets.

Political Considerations and the Road Ahead

For the positive effects to fully emerge, market doubts must diminish.
A key political priority is avoiding a second government shutdown at the end of January.
Stability in expectations is essential to prevent unnecessary volatility in consumption and
investment behaviour.

One more political rate cut remains likely. Its real-world transmission into loans
and mortgages has yet to materialize, and the system has still not absorbed the October cut.
The coming months will determine whether policy finally begins translating into the credit markets.