Fed Overview: The Good and the Not So Good

Driven by an euphoric phase, the S&P 500 has approached 7,000 points, nearing its 2000 valuation record, with six consecutive months of gains without retracement.
The key question for investors is now clear: has the Federal Reserve provided enough justification for this confidence, or does Jerome Powell’s caution mark the beginning of the end of this euphoric phase?

1) A Fed slowing the pace without complacency

On Wednesday, October 29, the Fed announced another 25-basis-point rate cut, bringing the federal funds rate into the 3.75%–4.00% range. This is the second consecutive reduction, aimed at countering the labor market slowdown.

However, the FOMC vote revealed strong internal divisions: one member wanted a deeper cut, another preferred no change. This reflects the delicate balance between supporting employment and avoiding renewed inflationary pressure.

Another key signal: the Fed decided to pause its balance sheet reduction (quantitative tightening) starting December 1st, in order to preserve financial system liquidity, as credit markets show early signs of stress. Powell clarified that this pause does not imply a lasting return to an expansionary stance.


Finally, Powell cooled expectations for another rate cut in December, stating that “nothing is guaranteed.” Money markets now price roughly a 70% chance of a hold in December, down from nearly 90% odds of a cut before the meeting.


2) Between monetary realism and market excess

The Fed is not ruling out further easing, but it refuses to fuel a bullish rally in the S&P 500 that is now considered excessive relative to fundamentals.
Current valuations rely heavily on expectations of continued rate cuts. If that narrative weakens, the likelihood of a technical correction in the S&P 500 rises.
At this stage, however, the index has not yet signaled a reversal.




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