Stocks Rise as Divided Fed Cuts Rates for Third Straight Time
Investors bet on further easing from the central bank pushing markets near record highs despite a divided vote.
Investors threw caution to the wind on Wednesday, pushing stocks toward record highs after the Federal Reserve delivered its third consecutive interest rate reduction. The central bank lowered its benchmark rate by a quarter percentage point to a range of 3.5% to 3.75%. While the Fed signaled a cautious path forward, Wall Street embraced the move, as hopes for additional easing in 2026 strengthened. Traders increased their bets that the central bank will cut rates at least twice next year, driving the Dow Jones Industrial Average (DJI) up 1.1% and sending the S&P 500 (SPX) higher by 0.7%, just shy of its all-time peak.
While the headline number pleased traders, the details of the meeting suggest the easy money era faces new hurdles. Policymakers updated their dot plot projections, indicating a significant deceleration in future cuts. The committee now envisions only one reduction in 2026 and another single cut in 2027. This hawkish undertone did little to dampen the mood on the trading floor, where optimism regarding corporate earnings and immediate capital relief took center stage.
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Bulls Charge on Corporate Strength
The broader market rally extended beyond the major indices, as specific corporate catalysts fueled significant buying pressure. The Nasdaq Composite (IXIC) gained 0.3%, supported by strength in the tech and energy sectors.
GE Vernova (NYSE: GEV) emerged as the day’s standout performer, skyrocketing 15.6%. The energy infrastructure giant electrified investors by raising its revenue forecast through 2028, doubling its dividend, and expanding its stock buyback program. Traders viewed the move as a vote of confidence in the long-term demand for power generation.
Meanwhile, Palantir (NASDAQ: PLTR) advanced 3.3% after the AI data analytics firm secured a lucrative spot in a $448 million program with the U.S. Navy. The deal further cements the company’s entrenched position within the defense sector. Even the casual dining sector found buyers, as Cracker Barrel Old Country Store (NASDAQ: CBRL) rose 3.5%. Despite cutting its revenue guidance, the chain posted earnings that eclipsed analyst expectations, proving that operational efficiency can still drive returns in a tight consumer environment.
Not every ticker participated in the festivities. GameStop (NYSE: GME) stumbled, falling 4.3%. While the video game retailer managed to beat profit forecasts, it reported revenue figures that missed Wall Street targets, prompting traders to exit positions.
A House Divided
The 9-3 vote marked the most significant dissent within the Fed since September 2019, highlighting the complexity of the current economic landscape. Governor Stephen Miran broke ranks to push for a more aggressive half-point cut, arguing that the labor market requires immediate, potent support. Conversely, regional Presidents Jeffrey Schmid of Kansas City and Austan Goolsbee of Chicago voted to hold rates steady, fearing that further easing could reignite inflation.
Fed Chair Jerome Powell acknowledged the difficulty of the decision during his post-meeting press conference. He described the deliberations as thoughtful but intense, noting that the committee must balance the risks of rising unemployment against sticky prices.
Emphasizing that the central bank remains in a neutral stance rather than a restrictive one, Powell stated:
“We’ll carefully evaluate that incoming data, and also, I would note that having reduced our policy rate by 75 basis points since September and 175 basis points since last September, Fed funds rate is now within a broad range of estimates of its neutral value and we are well positioned to wait and see how the economy evolves.”
Despite Powell’s cautious tone, bond markets moved to price in more aggressive action. Treasury yields eased as traders solidified their view that the Fed will need to cut rates further in 2026 to support the expansion.
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The ‘K-Shaped’ Conundrum
The Fed faces a unique challenge in the form of a K-shaped economy, where high-income households continue to spend lavishly while lower-income consumers struggle under the weight of debt and living costs. This divergence complicates the path for monetary policy, as rate cuts may overstimulate the wealthy while providing insufficient relief to the working class.
Powell addressed this disparity directly when asked about the split in consumer behavior.
“It’s clearly a thing,” Powell noted regarding the economic divide.
Furthermore, tariffs complicate the inflation outlook. Powell pointed out that levies on imports currently drive the overshoot in goods inflation, even as the services sector sees price pressures ease. The chair warned that housing remains a persistent problem, citing the lock-in effect where homeowners cling to low-rate mortgages from the pandemic era, stifling inventory and keeping prices elevated for new buyers.
FOMC Press Conference, December 10, 2025
Source: Federal Reserve YouTube
Political Heat and Liquidity Injections
The decision arrived amidst intense political pressure. President Donald Trump immediately criticized the magnitude of the reduction. Trump, who favors cheap capital to spur growth, argued that the central bank acted too timidly given the economic backdrop.
Trump called the quarter-point cut: “A rather small number that could have been doubled, at least doubled.”
Market prediction platforms now heavily favor National Economic Council Director Kevin Hassett as Trump’s likely pick to replace Powell when his term expires. Hassett’s potential nomination signals a shift toward a Fed chair more aligned with the executive branch’s desire for lower rates, further fueling the market’s belief in future easing.
Beyond the rate cut, the Fed pulled another lever to ensure financial stability. The central bank announced it would resume purchasing Treasury securities to maintain ample liquidity in overnight funding markets. The New York Fed will begin buying $40 billion in Treasury bills starting Friday. This move effectively injects cash into the financial plumbing, a technical adjustment that equity markets often interpret as a bullish signal for asset prices.
As the closing bell rang, the message from Wall Street rang clear: traders care more about the immediate cost of capital than the internal squabbles of policymakers. With investors betting on more cuts in 2026, the market now looks to the upcoming holiday season and the transition of power in Washington to set the tone for 2026.
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