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The U.S. Federal Reserve reduced its benchmark policy rate by 25 basis points to a 4%-4.25% range on Wednesday, boosting investor appetite toward emerging markets, particularly Türkiye, according to market analysts.
The move, the Fed’s first rate cut since December 2024, came as recession fears grew following consecutive weak job data, increasing pressure on the U.S. central bank to provide relief to the real economy by lowering borrowing costs.
The Fed also released new economic projections, cutting its year-end forecast for the federal funds rate to 3.6% and signaling the possibility of further rate reductions in 2025.
Fed Chair Jerome Powell said after the meeting that downside risks to employment had risen, which changed the balance of risks and made it appropriate to move toward a more neutral policy stance. "In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside—a challenging situation," he remarked.
The U.S. labor market was already showing weakness and policymakers did not want it to deteriorate further, Powell said.
Powell also noted that there was no broad support for a 50-basis-point cut, as the only dissenting vote came from Stephen Miran, newly appointed to the Fed Board of Governors by President Donald Trump.
After Powell's remarks, expectations of further easing impacted the bond and commodity markets. The yield on the U.S. 10-year Treasury fell to 3.99% before stabilizing at 4.07%. The Dollar Index dropped to 96.2, its lowest level since February 2022, before recovering slightly to 97.2.
Turkish economist Mahfi Egilmez wrote in a blog post before the meeting that a single 25-basis-point cut might not have a strong effect on Türkiye, but continued reductions could be felt more seriously. He argued that lower U.S. interest rates would likely weaken the dollar, strengthen the Turkish lira, and attract short-term capital inflows through carry trade mechanisms, which refers to borrowing in a low-yield currency and investing in a higher-yielding one to profit from the interest rate difference.
"This would increase imports while reducing exports," he said. "A stronger lira would also lower the cost of foreign debt. If the CBRT accelerates its own rate cuts, this would support the stock market and investments, and growth could exceed forecasts."
The Turkish central bank implemented its second consecutive rate cut in September, lowering the policy rate by 250 basis points. However, Türkiye still diverges from other emerging markets with higher interest yields that outpace inflation, offering a favorable real return for carry traders.
After the Fed's decision, Kerry Craig, strategist at U.S.-based J.P. Morgan Asset Management, said the move was widely expected and could support emerging market assets. According to Craig, a weaker dollar would particularly benefit equities and local-currency bonds.
Another U.S. investment bank, Goldman Sachs, also expects the Fed to extend its easing cycle, projecting two additional 25-basis-point cuts in October and December that could further support global risk appetite.
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Local brokerage firm Integral Yatirim stated that the Fed’s decision and projections were no surprise. The fact that members who had previously dissented voted unanimously was seen as a strong message defending the Fed’s independence, following recent criticisms from President Trump. The firm added that capital flows could shift toward emerging markets, and countries with a clear policy story would stand out.
Türkiye's largest private bank, Is Bank’s investment arm, Is Investment, said the performance of U.S. futures and Asian markets pointed to a slightly positive opening on Borsa Istanbul. While glass, food retail, aviation, and automotive stocks faced selling pressure, banks and telecoms supported Türkiye's benchmark stock index, the BIST 100.
Gains in the BIST 100 have surpassed 7% so far this week, with the index rebounding above 11,100. Nevertheless, short-selling volume has also mirrored this surge, reaching ₺26.09 billion ($631.27 million), or 17.8% of total transaction volume as of Wednesday close, which indicates that market sentiment is also weighing against the rally and that selling pressure may persist despite recent gains.
In Asia, markets traded mostly higher except in Hong Kong. The Hong Kong Special Administrative Region lowered its benchmark rate by 25 basis points in line with the Fed, due to its currency peg to the U.S. dollar.
Investors were also awaiting the Bank of Japan’s policy decision, as political uncertainty grew after Prime Minister Shigeru Ishiba resigned. Market expectations were that the bank would keep rates unchanged.
Ahead of the close in the region, Japan’s Nikkei 225 rose 1.5%, South Korea’s Kospi gained 1.2%, and China’s Shanghai Composite advanced 0.5%, while Hong Kong’s Hang Seng slipped 0.1%.
Following the regional trend, Türkiye’s stock exchange, Borsa Istanbul, opened 0.5% higher on Thursday. The banking index rose 0.4% and the holdings index gained 0.63%. Among sectors, mining increased the most with 3.62%, while tourism fell 1.2%.
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