The 3-month SOFR forward curve is now below 4.2 percent by year-end and below 2.9 percent by the end of 2025.

The headline reaction for private markets is a welcome reduction in borrowing costs, both for new deals and relief for existing portfolio companies whose debt service obligations have stretched cash flow — since 2022, debt financing costs have jumped to an average of around 10 percent from a cycle-low of 5 percent, according to data from Pitchbook/LCD.

But, the decisiveness of today's Fed response means there's reason to be cautious. The half-point cut could be interpreted as a warning sign that fears of economic weakness are becoming more pronounced. Fed commentary on today’s decision included its view that “The economic outlook is uncertain.”

Chairman Powell delivered his own remarks that slightly backtracked this sentiment, walking a tricky line to dissuade investors from reading too much into potential worries over worsening conditions. “There is thinking that the time to support the labor market is when it’s strong, and not when you begin to see the layoffs,” he said, noting that initial unemployment claims remain largely flat.

The Fed's ‘dot plot’ confirms more rate cuts are coming but reveals some level of disagreement on how quickly and how far those cuts will be. Nine of the central bank’s 19 officials expect rates to end the year at about 4.4 percent, which suggests a pair of quarter-point cuts in each of the Fed's two remaining meetings.

But seven policymakers expect just one more cut this year, and two officials expect none.

Most Fed officials expect interest rates to eventually settle between 2.5 percent and 3.5 percent, which is higher than at any point during the post-financial crisis decade.

Powell seems to think that the age of ultralow rates has gone for good: “We’re probably not going back to that era where there are trillions of dollars of sovereign bonds being issued at negative rates,” he said. “My own sense is that we’re not going back to that.”

Investors’ rate cut anticipation has been ramping up as the year has progressed, and some firms have already pointed toward those expectations as a catalyst.

Earlier this summer, Blackstone President Jonathan Gray told the Financial Times that the firm has seen clear signs of waning inflation across the portfolio and noted confidence in near-term Fed moves: "The Fed has and will have air cover to cut rates."

That expectation played a part in Blackstone's most active quarter since 2022, with $33.7 billion in deployments and another $19.1 billion allocated to new investments. Gray said the uptick in activity was motivated by rate expectations and allowed the firm to get a jump on dealmaking because of its "decision to invest before the all-clear sign, prior to the Fed cutting rates."