The Federal Reserve pivots to dovish and cuts interest rates by 25 bps, causing a rally in global financial markets—US stocks and commodities hit new highs together.

The Federal Reserve Cuts Rates as Expected, but the Dot Plot Implies Divergence

On Thursday morning, the Federal Reserve announced its policy rate decision, passing with 9 votes in favor and 3 against to cut interest rates by 25 basis points, bringing the federal funds target range down to 3.50%-3.75%. This is the third rate cut this year, totaling a 75 basis point reduction, but the three dissenting votes marked a six-year high, reflecting significant internal disagreement within the committee about future policy directions.

In the decision document, Kansas City Fed President Esther George and Chicago Fed President Austan Goolsbee advocated holding steady, while Fed Governor Michelle Bowman supported a more aggressive 50 basis point cut. This hawk-dove split was even more evident on the “dot plot”—7 officials believe rates should remain unchanged in 2026, while 8 support at least two more cuts.

Powell Eases Rate Hike Concerns, Starts Bond Purchases to Stabilize Markets

Chair Powell stated directly at the press conference that rate hikes are no longer part of the basic policy outlook, emphasizing that the Fed is currently in a “favorable position” to observe economic developments before making further decisions. The post-meeting statement announced that over the next 30 days, the Fed will purchase $40 billion in short-term government bonds. Powell further indicated that bond purchases could remain at a high level in the coming months to prevent pressure in the overnight lending market.

Regarding economic outlooks, the committee raised its GDP growth forecast for 2026 by 0.5 percentage points to 2.3%, but still expects inflation to remain above 2% until 2028. The unemployment rate forecast remained at 4.4%. Powell mentioned that if the Trump administration does not implement new tariffs, goods inflation could peak in the first quarter of next year. He feels the US has made progress in non-tariff areas, and after removing tariffs, inflation is around 2%, slightly below target.

Market Sentiment Turns Optimistic, Dollar Dips, Precious Metals Hit New Highs

Following the decision, the US dollar index fell 0.61% to 98.63, hitting a 1.5-month low and breaking below the 99.0 level; USD/JPY declined 0.56%. In contrast, EUR/USD rose 0.6%, reflecting a shift in market expectations for dollar depreciation.

Commodities also performed strongly. Gold rose 0.5% to $4,227 per ounce, while silver hit a record high of $61.9 per ounce. WTI crude oil increased 0.98% to $58.9 per barrel. The 10-year US Treasury yield ended a four-day rally, falling 4 bps to 4.15%.

In cryptocurrencies, Bitcoin declined 0.43% within 24 hours to $92,300; Ethereum rose 0.6% to $3,336.7.

Global Stock Markets Mixed, US Major Indices Rise Together

US stocks led global gains. Dow Jones rose 1.05%, S&P 500 increased 0.68%, Nasdaq gained 0.33%. The Russell 2000 index hit a new high, up 1.3%. China’s Golden Dragon Index rose 0.64%.

Tech stocks showed mixed performance: Microsoft fell 2.74%, Meta down 1.04%, Nvidia down 0.64%, but Apple rose 0.58%, Google A increased 0.99%, Tesla up 1.41%, Amazon up 1.69%.

European markets were mixed: FTSE 100 up 0.14%, DAX 30 down 0.13%, CAC 40 down 0.37%.

Internal Disputes Continue at the Fed, Recession Risks Cannot Be Ignored

The Fed “whistleblower” Nick Timiraos wrote that despite the third consecutive rate cut, there are unusual disagreements within the committee, with officials showing little appetite for further cuts. Powell’s term ends next May, meaning he will only chair the next three rate decision meetings.

The combination of persistent price pressures and a cooling labor market presents the Fed with a difficult trade-off unseen in decades—similar to stagflation in the 1970s. UBS Chief US Economist Jonathan Pingle warned that as rates approach neutral levels, each rate cut will lose more support, requiring strong data to build consensus.

Other Central Banks Hold Steady, Global Policy Diverges Further

The Bank of Canada kept rates unchanged at 2.25%. It noted that Canada’s Q3 GDP growth exceeded expectations, mainly driven by trade fluctuations and labor market improvements. The bank stated that the economy remains resilient, with moderate growth and inflation close to the 2% target next year.

ECB President Christine Lagarde hinted that the ECB might raise eurozone growth forecasts again at next week’s meeting, following a hike in September (which raised this year’s GDP forecast from 0.9% to 1.2%).

A New Arms Race in Space Exploration

Elon Musk’s SpaceX reportedly plans to go public as early as mid-next year, with an overall valuation potentially reaching $1.5 trillion and an IPO raising over $30 billion, the largest ever. If successful, Musk’s net worth could jump from about $460.6 billion to $952 billion, paving a clear path to becoming the world’s first “trillionaire.” Musk currently owns about 42% of SpaceX.

The Wall Street Journal reported that Musk and Amazon founder Jeff Bezos are competing to bring the concept of multi-trillion-dollar orbital data centers into space. Bezos’ Blue Origin has assembled a team that has spent over a year researching orbital AI data center technology. SpaceX plans to use upgraded Starlink satellites to carry AI computing payloads, making this a key selling point for the IPO, potentially valuing the company at $800 billion. Although deploying satellites with powerful AI computing capabilities faces engineering challenges and high costs, the idea continues to attract many industry leaders.

Tech Giants Shift AI Strategies, Closed-Source Models Become the New Direction

Bloomberg reported that Meta is adjusting its AI development strategy, shifting focus toward closed-source models and optimizing third-party models including Alibaba’s Tongyi Qianwen. The news caused Meta’s stock to fall 1.3% on Wednesday, while Alibaba’s US-traded shares rose as much as 3.1%.

Meta CEO Mark Zuckerberg is personally leading the formation of a team called TBD Lab, training models under the code name “Avocado,” which incorporates multiple third-party models including Google Gemma, OpenAI GPT-4o, and Chinese tech companies. The new model is expected to adopt a paid model and be launched as early as spring next year. This move aims to break away from long-standing open-source strategies and develop profitable solutions to recover massive investments in competition with Google and OpenAI.