To The Moon

Here’s an analysis of whether the Fed’s dovish tilt plus easing trade tensions might sustain a rally, and what to expect for rate cuts in 2025.

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1. Will the Fed’s dovish tilt + easing trade tensions set the stage for a sustainable rally?

Tailwinds in favor

Rate-cut expectations easing financial conditions

Markets are pricing in about 1 key cut (25 bps) soon (mid-September) and more over the rest of the year. A lowering of interest rates tends to reduce borrowing costs, improve liquidity, and boost investor sentiment.

Softening labor market & cooling inflation giving the Fed room

There are signs the jobs market is losing some momentum, and inflation pressures are showing some moderation. That gives policymakers more flexibility to ease without immediate risk of runaway inflation. 

Easing trade tensions alleviates one layer of uncertainty

Global trade war fears (tariffs, retaliation, etc.) have been a major headwind. If those risks decline (for example, through meetings between the U.S. and China that go well), then that lifts uncertainty, which encourages investment, supports supply chains, etc. This can reinforce a broader market rally. 

Headwinds & risks

Expectations are high — risk of disappointment

When markets expect multiple rate cuts, any Fed move that looks hesitant, or any data that suggests inflation is stickier than hoped, can sharply pull back sentiment. For instance, if Powell signals that the Fed is more concerned about inflation or that cuts will be slower, the “dovish tilt” may be seen as temporary. 

Lagged effects & structural inflation risks

Even as inflation appears to be moderating, there are risks from supply chain constraints, tariffs, housing costs, wages, etc., that may delay substantial disinflation. These could force the Fed to move more slowly.

Economic growth fragility

If rate cuts come too slowly, or if easing comes at a time when growth is weakening, it could lead to stagflation-type pressures (low growth + inflation). Also, too much easing risks pushing up longer-term rates or hurting the U.S. dollar, which complicates trade and inflation.

Trade rhetoric vs. reality

Even if leaders say meetings “went well,” implementation of trade agreements, enforcement, etc., can lag or be partial. Markets tend to react to concrete results rather than just statements.

Overall verdict on sustainability

Putting both sides together, yes — the dovish tilt + easing trade tensions furnish a plausible foundation for a rally that could be more sustainable than a purely speculative short-term spike. But for that to hold, several conditions need to be met:

Fed needs to follow through (cuts, or at least credible forward guidance)

Inflation must continue to decelerate or at least show no unexpected reversals

Growth must not collapse or fall into recession

Trade deals need to produce real outcomes (not just headlines)

Market expectations must be managed well to avoid over-stretch

In other words: a sustainable rally is possible, but not guaranteed. The risk/reward is balanced; upside if things go well, downside if any piece slips.

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2. How do I expect rate cuts in 2025?

Based on current data, market expectations, and what major banks (GS, Morgan Stanley, etc.) are saying, here’s a likely scenario:

Timeframe What I expect the Fed to do / Signal Key Drivers / Risks

September 2025 25 bps cut almost certain — to begin the easing cycle. The Fed will likely emphasize that policy is still “data-dependent” and stress inflation is still a consideration. Inflation prints, especially PCE/Core inflation, labor market strength/weakness, consumer sentiment. If inflation surprises hot or labor market tightens, the Fed may lean toward a cautionary tone.

October-November 2025 Possibly one more cut in October, maybe another in December. Goldman Sachs expects three cuts in 2025, bringing the terminal rate down to about 3.00-3.25% from current ~4.25-4.50%. Dependent on inflation continuing to moderate, economic slowdowns not turning into recession, and trade/policy risks not flaring up again. Also depends on how dovish the Fed becomes and whether markets stay calm.

Late 2025 into early 2026 Further modest easing may occur (perhaps 1-2 additional 25bps cuts) if economic data points to sustained softness; but cuts beyond that may be contingent on acute recession risks. GS projects two additional cuts in 2026. Recession risk, fiscal policy (spending/taxes), geopolitical/trade stability, and any unwind of supply constraints/inflation pressures. If inflation remains persistent or resurges, rate cuts could be delayed or scaled back.

Alternative scenarios

More aggressive cuts if inflation falls faster than expected, labor market deteriorates somewhat, and economic growth remains tepid. In that case the Fed might aim to get to neutral sooner.

More cautious path if inflation sticks above target, or if employment stays strong. In that case, cuts may be more spaced out, possibly only 2-3 in total in 2025 instead of more.