Tech stocks rose on Wednesday following a 25 basis point cut by the Federal Reserve, with Chair Jerome Powell suggesting that further reductions might be on the horizon. This decision seems influenced by a softening labor market and concerns regarding employment.
The Nasdaq 100, tracked by Investco QQQ Trust, managed to recover some losses earlier in the day, bouncing back to around 24,200 points despite a shaky start. Early in the session, tech stocks, particularly those associated with AI, like Nvidia, Broadcom, and Palantir, saw a drop of about 3%. This dip followed China’s announcement prohibiting domestic firms from buying Nvidia’s AI chips.
The Fed’s latest cut brings the federal funds rate down to a range of 4.00%-4.25%. This marks the fourth cut in the current cycle and the first adjustment after a nine-month pause.
This move follows considerable pressure from President Donald Trump, who has long advocated for lower rates to boost consumption and investment.
Interestingly, the quarter-point reduction wasn’t unanimous. Governor Stephen Milan, appointed by Trump, opposed the cut, instead favoring a more significant, 50 basis point decrease.
High-tech stocks that performed well during Powell’s remarks
Based on data from Benzinga Pro, several high-performing stocks with market capitalizations over $10 billion benefited during Powell’s speech between 2:30 PM and 3:30 PM.
- Nebius Group: 4.28% increase
- SanDisk: 3.51% increase
- IONQ Inc.: 3.29% increase
- Oklo Inc.: 2.93% increase
- Reddit Inc.: 2.92% increase
- Joby Aviation Inc.: 2.74% increase
- Nio Inc.: 2.64% increase
- Palantir Technologies Inc.: 2.60% increase
- Tesla Inc.: 2.44% increase
- Roblox Corp.: 2.42% increase
What Jerome Powell said
He referred to the move as a “reducing risk management” strategy, emphasizing that while growth forecasts remain modest, the Fed aims to proactively bolster the labor market before a recession could set in.
On the topic of inflation, Powell noted that current headline and core PCE inflation rates stand at 3.0% and 3.1%, respectively. However, he suggested that a recent uptick in commodity prices, partly due to tariffs, shouldn’t lead to long-term inflation issues. “The reasonable basic case is that the impact on inflation will be relatively short-lived,” he remarked.
Yet, he stressed, “Our job is literally to make sure it happens.”
When asked about the Fed’s independence, especially in light of President Trump’s influence and the recent appointment of FOMC members with ties to the administration, Powell responded cautiously.
The economic forecast suggests the federal funding rate could hit 3.6% by the end of 2025, lower than the June median estimate of 3.9%, hinting that more cuts might be forthcoming.
However, Powell dismissed the idea of a more significant 50 basis point cut, asserting, “There was no widespread support for the 50-point cut at all,” noting such drastic adjustments are typically reserved for situations where the policy stance is “clearly in the wrong place.”
He mentioned that the Fed is approaching a neutral position but remains prepared to act if labor market conditions worsen or if inflation deviates significantly. “There’s no risk-free path here,” he cautioned.
In response to concerns about the possibility of fostering a financial bubble with current rates, Powell pointed out that despite record stock levels, there’s no indication of a systemic imbalance.
Images created using artificial intelligence via Midjourney.
