Fed’s September 2025 Rate Cut: What It Means for U.S. Stocks and Inflation

출처 픽사베이

After the Fed’s September 2025 Rate Cut: What Comes Next for U.S. Stocks and Inflation?


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Part 1. Introduction – Why U.S. Interest Rates and Stocks Draw the World’s Attention

There are three words that never fail to appear in economic news: interest rates, inflation, and the U.S. stock market.

An interest rate is not just the cost of borrowing; it is the thermostat of the economy. Inflation is not simply “rising prices,” but also a measure of how much the value of money is falling. They may appear separate, but in reality, they are tightly linked. Policymakers and investors alike keep a watchful eye on both.

U.S. interest rates, in particular, ripple across the entire global economy. The reason is simple: the United States issues the world’s reserve currency, the dollar. Most global commodities—oil, grains, semiconductor materials—are traded in dollars. More than 60% of the world’s foreign reserves are held in dollars. When the Federal Reserve lowers rates, dollar liquidity expands and flows outward; when it raises rates, dollars are pulled back into the U.S.

The first place to react is the U.S. stock market. With about 40% of global market capitalization, it serves as both a barometer of investor sentiment and a mirror of global capital flows.

Consider two historical examples:

In 2019, when the Fed cut rates three times, the Nasdaq jumped nearly 35% in a single year.

In 2022, when rate hikes accelerated, the Nasdaq collapsed more than 30%, taking the brunt of the blow.


The same rate move can either fuel a rally or trigger a crash, depending on whether it is viewed as stimulus or as a spark for inflation.

In short: interest rates and inflation are not abstract textbook concepts. They directly shape investment returns. Lower rates brighten corporate earnings outlooks by cutting financing costs, but they can also reignite inflation, forcing central banks to tighten again.

This article unpacks that tug-of-war in plain terms:

1. How a rate cut affects inflation, and


2. How a rate cut reshapes the U.S. stock market.



We’ll use historical cases and hard numbers to make the picture clear.


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Rate cuts: near-term rallies vs. medium-term inflation risks

Nasdaq and growth stocks are most sensitive

Dollar weakness → boosts exports, but stirs commodity prices and import inflation



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Part 2. Rate Cuts and Inflation – Between Stimulus and Price Pressures

(1) The basic mechanism: cheaper money fuels spending

An interest rate is essentially “the price of money.” Lower rates mean cheaper borrowing. When the Fed cuts, households and businesses can obtain funds more easily, fueling spending and investment.

Example: A U.S. household with a 30-year, $300,000 mortgage. If the rate falls from 6% to 5%, annual interest payments shrink by about $3,000. That freed cash can go toward a car upgrade, appliances, dining out, or travel.

Businesses benefit too. A manufacturer borrowing $100 million to expand capacity saves $10 million a year if rates fall one percentage point. That savings can fund R&D, hiring, and expansion—lifting output and incomes across the economy.

But more demand also means rising price pressures. Stimulus today can morph into inflation tomorrow.


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(2) The 1970s lesson – when cuts poured fuel on the fire

In the 1970s, after the first oil shock, inflation spiked. The Fed initially raised rates, then quickly cut them to stave off recession. The result was disastrous: the economy fell into stagflation—high inflation plus high unemployment.

CPI inflation hit 12% in 1974, while joblessness climbed into double digits. This episode remains the classic warning: cutting rates before inflation is under control is like throwing gasoline on a fire.


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(3) The opposite case – 2008 and the zero-rate shield

Contrast that with 2008. As the financial crisis escalated, the Fed slashed rates from above 5% to near zero. Inflation pressures had vanished; deflation loomed.

Indeed, U.S. CPI fell to –0.4% in 2009. Aggressive easing helped stabilize demand. Stocks bottomed in March 2009 and launched a historic bull market.

The lesson: the impact of rate cuts depends entirely on the inflation backdrop.


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(4) The 2025 balancing act

Today, in 2025, the Fed funds rate remains in the 4% range. Inflation has cooled from the 9% peak of 2022, but CPI still runs in the 3% range, above the 2% target.

Positive case: Cuts revive spending and investment, channeling money into AI, semiconductors, and renewable energy.

Negative case: Cuts reignite inflation, forcing the Fed back into hikes.


The reality is a tightrope walk between stimulus and price risk.


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Part 3. Rate Cuts and U.S. Stocks – Growth Rallies and Capital Flows

(1) Growth and tech stocks win big

Why do tech and growth names jump first?

Lower rates reduce the discount rate used in valuing future earnings → future profits look larger today.

Cheaper credit boosts corporate investment capacity—vital for R&D-heavy tech firms.


In 2019, after three Fed cuts, Nasdaq rose +35%, the S&P500 +28%, the Dow +22%. Big Tech was the main driver.


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(2) Money rotates from bonds to stocks

Lower yields make bonds less attractive, so capital shifts to equities.

The pandemic in 2020 was a vivid case:

Dow: +7.2%

S&P500: +16.3%

Nasdaq: +43.6%


Massive liquidity + zero rates = tech boom.


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(3) The dollar effect – export boost, inflation risk

Rate cuts usually weaken the dollar. A weaker dollar makes U.S. exports cheaper abroad, lifting revenues at multinationals like Apple and Boeing.

But weaker dollars also push up commodity prices (oil, grains, metals), since they are dollar-denominated. Thus, stronger stock earnings come with renewed inflation pressures.


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Part 4. Scenario Outlook – What Investors Should Watch

Scenario 1: Growth rally

Condition: Cuts + stable inflation

Result: Tech rally, capital inflows, broad market upswing


Scenario 2: Inflation resurgence

Condition: Cuts while inflation stays high

Result: Initial rally fades, Fed forced to hike again → volatility spike


Scenario 3: Currency factor

Condition: Dollar weakens sharply

Result: Exporters thrive, but global inflation risk re-emerges through higher commodity costs



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Part 5. The September 2025 Rate Cut – Market Reactions

(1) Stock market: instant tech rally

After the Fed cut by 25bps on September 17, futures spiked:

Dow +0.8%

S&P500 +1.1%

Nasdaq +1.7%


Tech and growth sectors—AI, semiconductors, cloud, EV batteries—led the move.

Past precedent: in 2019, Nasdaq gained +35% after a similar series of cuts. The pattern suggests another short-term rally is underway.

But markets now ask: will earnings catch up? A rally without profits is fragile.


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(2) Inflation: the embers remain

CPI in August 2025 was still in the mid-3% range, well above target. Cutting rates risks reviving demand-driven price pressures.

The 1970s stagflation is the cautionary tale.

Already, bond yields haven’t fallen much, and commodities like oil and copper are rising. Inflation worries linger.


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(3) Currency flows: dollar weakens, EMs in play

Lower U.S. rates weaken the dollar. That encourages flows into emerging markets—Korea, Taiwan, Brazil, India.

But a weak dollar also lifts commodity prices, raising global import costs. For oil-importing countries, this can offset capital inflows with higher input costs.


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(4) Net assessment: rally meets risk

This September cut delivered:

1. Short-term: Tech rally, revived sentiment


2. Medium-term: Inflation and dollar risks that could force renewed tightening



Investors should enjoy the bounce but track CPI, commodities, and currency moves before committing heavily.


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Part 6. Conclusion – Walking the Tightrope

Rate cuts are a double-edged sword.

Near term: Spark rallies, especially in tech and growth.

Long term: Risk reigniting inflation, leading to another tightening cycle.


In 2025, the global economy stands between slowdown and inflation. Investors must look beyond “cut = bullish” to consider inflation, FX, and capital flows.

The Fed’s move is both an opportunity and a risk. The key is discipline: don’t chase rallies blindly, but align strategy with long-term balance.

This article is for informational purposes only and does not constitute investment advice.


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📌 References

1. Federal Reserve Board – FOMC Statement, Sept. 17, 2025 (federalreserve.gov)


2. Bureau of Labor Statistics – CPI Detailed Report, Aug. 2025 (bls.gov)


3. OECD Statistics – Household Debt to GDP Ratio, 2024 Update (data.oecd.org)


4. International Monetary Fund – World Economic Outlook, Apr. 2025 (imf.org)


5. Bloomberg / Reuters – Coverage of FOMC and Global Markets, Sept. 2025 (bloomberg.com / reuters.com)