Andrew Mulliner, global bonds portfolio manager at Janus Henderson Investors expects this cut to drive bonds yields further down. "If the statement read dovish, the substance of the press conference conveyed a more wary stance towards further easing from chairman Powell, if not a neutral stance. The press conference started with optimism and positivity on the US economy, with justification for the cut attributed to concern around international factors and the knock-on risks it posed to US business sentiment. However, investors hoping for another dose of dovish rhetoric to further prop up stocks and support lower bond yields and spreads were left somewhat disappointed.
"Powell characterised the Fed's attitude to the easing of policy as a mid-cycle correction and whilst further cuts cannot be ruled out, it seems clear that the Fed has no interest in feeding already heightened expectations of monetary policy support to investors when equity markets are near all-time highs and bond markets already price substantial additional easing".
He added: "Ultimately we believe that whilst the Fed may not be willing to capitulate to the rate expectations embedded in the market, be it due to concerns of causing excessive risk taking or being accused of pandering to the President, the Fed will be forced to lower rates further in coming months as the steady deterioration in the business surveys feed into weaker US economic data. Subsequently we believe bond yields are destined to decline further from here, whilst equities and credit spreads are vulnerable."
Lee Ferridge, head of multi-asset strategy, the Americas at State Street Global Markets, said the less dovish message is likely to cause the yield curve to flatten. "As widely expected, the FOMC cut rates for the first time in 10 years. However, the accompanying statement and subsequent press conference appeared designed to rein back market expectations of another three cuts to come over the next 12 months. The Fed is clearly concerned by the recent data slowdown in parts of the economy (although notably not in the labor market) and continued soft inflation prints. While this move was characterised as more of an insurance cut, the FOMC may now be in wait and see mode to see if its fears over the trade war and global slowdown come to fruition. This less dovish message is likely to see short rates rise and the yield curve to flatten. It is also likely to see the USD gain further, while equity markets are unlikely to welcome the reduced prospects of more rate hikes to come."
Hinesh Patel, portfolio manager at Quilter Investors said: "Despite being priced into the market this rate cut by the Federal Reserve, the first in a decade, is an historic moment for the global economy. We have not seen a cut of 0.25% from the US since the 90s so it is clearly a rarity. Federal Reserve Chairman Jerome Powell has signalled that he and his team are looking to manage the US economy through what could be a turbulent few months and is implementing an insurance policy against a possible economic downturn.
"The comparisons to the 90s are apt, as much of the macro data we see now is similar to that period, and it is clear Powell is looking to provide the economy with a comparable soft landing as trouble remains on the horizon."
"As there were two dissenters in the committee, as well as Donald Trump's predictable outburst on Twitter, the use of uncertain language by Powell is important going forward as he looks to balance the needs of the US versus that of the global economy. This is mid-cycle adjustment can be interpreted as one to respond to global issues while US data remains stable. This move has added two-way risk back into the market and is an attempt to encourage executives to spend and invest, rather than helping consumers. The paradox here is that corporate leverage is already very high and the "hawkish cut" could actually end up tightening financial conditions ahead".