Fed Rate Cuts: A Catalyst for Risk Assets in 2025?

The Federal Reserve's September 2025 rate cut-its first in nine months-marked a pivotal shift in monetary policy, slashing the federal funds rate by 0.25% to a range of 4.0%–4.25% according to market analysis. As of November 2025, the market now prices in an 87% probability of a further rate cut in November, driven by growing concerns over slowing economic growth and a cooling labor market as Powell's allies suggest. This shift has sent ripples through global markets, with equities and cryptocurrencies poised to benefit from the Fed's accommodative stance.

Equity Markets: A Tale of Two Sectors

The September rate cut has already begun reshaping equity valuations. For cash-heavy conglomerates like Berkshire Hathaway, the decline in short-term bond yields-from 5.51% in October 2023 to 3.95% by late September 2025-poses a direct threat to operating earnings. With $344 billion in Treasury bill holdings, a one percentage point drop in yields could reduce after-tax profits by $2.5 billion, or 5% of 2024 earnings. However, this headwind is offset by tailwinds in growth sectors.

The housing market, for instance, is experiencing a renaissance. Lower mortgage rates, spurred by the Fed's easing cycle, are improving affordability and boosting sales. This benefits Berkshire's subsidiaries in the building products industry, such as Shaw Flooring and Benjamin Moore Paints. Similarly, commercial real estate firms like First National Realty Partners are anticipating a surge in activity as borrowing costs decline, unlocking value in asset-heavy industries.

Broadly, equities are seeing a rebound in risk appetite. U.S. technology stocks, which had faltered in early 2025, have staged a recovery as investors anticipate a more dovish Fed environment. The S&P 500's performance underscores this trend, with sectors like consumer discretionary and industrials outperforming, reflecting optimism about a rate-cut-fueled economic rebound.

Crypto Markets: Riding the Liquidity Wave

Cryptocurrencies, inherently sensitive to interest rate cycles, are also responding to the Fed's pivot. The 87% probability of a November rate cut has driven inflows into risk-on assets, with Bitcoin and Ethereum seeing renewed buying interest. Lower U.S. rates reduce the opportunity cost of holding non-yielding assets like crypto, while also weakening the dollar-a tailwind for digital assets priced in USD.

Moreover, the Fed's internal debate over the pace of cuts has added volatility. While allies of Chair Jerome Powell advocate for aggressive easing in December, others favor a data-dependent approach. This uncertainty has created a "risk-on/risk-off" dynamic, with crypto markets oscillating between bullish momentum and profit-taking. However, the overarching narrative remains clear: a sustained rate-cutting cycle is likely to expand the risk asset universe, with crypto positioned as a beneficiary of increased liquidity.

Risks and Caveats

While the Fed's easing cycle offers a tailwind, investors must remain cautious. Historical data shows that even in low-rate environments, recessions can still occur. For example, the 2001 dot-com crash and 2008 financial crisis unfolded amid accommodative monetary policy. For equities, this means valuations could face downward pressure if economic data deteriorates faster than expected. For crypto, regulatory scrutiny and macroeconomic volatility remain persistent headwinds.

Conclusion: A New Era of Opportunity?

The Fed's September 2025 rate cut and the 87% probability of further easing in November 2025 signal a shift toward accommodative policy. For equities, this means a rebalancing of sector dynamics, with growth and cyclical stocks gaining traction. For crypto, it represents a potential inflection point in institutional adoption. However, as always, the path forward will depend on the interplay between monetary policy and real-world economic data. Investors who position for a prolonged easing cycle may find themselves well-placed to capitalize on the next phase of the risk asset rally.