Here is Schwab's early look at the markets for Thursday, September 18.

The Federal Reserve's quarter-point rate cut Wednesday surprised few and left Wall Street unimpressed, judging by the lackluster market response. While the Fed predicted two more rate cuts this year in its "dot plot" of projections as downside risks to employment worsen, there wasn't much sense of big picture change. Instead, policy makers continue to juggle their dual mandate of stable prices and maximum employment.

To some extent, they're handicapped because the two mandates are diverging and the central bank's tools can't address both at once. Inflation stays stubborn while hiring and job creation retreat. Though Fed Chairman Jerome Powell cited "a shift in the balance of risks" toward unemployment and noted moderating economic activity, he also observed that tariffs have pushed up the price of some goods. He said in his press conference he still thinks tariffs will have a one-time effect on prices, but added, "we can't assume that."

Looking at the Fed's new rate projections, policy makers are still more conservative than the market, lowering the expected target rate to 3.4% by the end of 2026 from the previous 3.6%. The Treasury market sees rates between 2.75% and 3.25% by then, per the CME FedWatch Tool. Fed projections fall to 3.1% by late 2027, down from the previous 3.4%, but that still speaks to caution. The Fed doesn't expect inflation to reach its 2% goal until 2028 and sees this year's personal consumption expenditures (PCE) inflation index at 3%, unchanged from its June projection.

The Fed expects two more cuts this year, up from June's projection of a total of two.

"The weakening in the labor market is the key driver behind the rate cut," said Kathy Jones, chief fixed income strategist at Schwab. "It looks like job growth has slowed to about 70,000 per month, which is about in line with estimates for what is needed to keep the unemployment rate stable. But it has been edging higher, and the risk is that job growth slows more as a result of immigration restrictions limiting supply, and tariffs causing demand to drop in some industries."

Powell cited both of those factors in his press conference when asked why job growth had slowed.

Inflation keeps pushing higher despite the job slowdown, posing a challenge that Powell also mentioned.

"They can choose to look through the current upturn in inflation on the assumption that the tariff pass-through will eventually end," Jones said. "However, since tariff policy is ever-changing, it’s hard to get inflation to stabilize or come down. Moreover, inflation expectations are stuck near 3% to 3.5% which is well above the 2% target."

Jones sees room for rates to fall further but still thinks the dominant trend is the steepening of the yield curve, meaning longer-term yields gaining more than short-term ones. That's tough on consumers and business owners who want to borrow and would be reminiscent of what happened last year when the Fed cut rates but longer-term yields rose.

"Once a cyclical slowdown is priced in, the market will have to deal with the challenge of rising debt levels in all major developed countries and the uncertainty about tariff policies affecting growth and trade," Jones said.

Jones thinks the U.S. 10-year Treasury note yield could fall to 3.8% from its current mark just above 4%, but not much lower given high inflation and policy uncertainty. The 10-year yield rose five basis points to 4.08% Wednesday, inching up after the rate cut.

One question is whether investors continue to focus on the potential for rate cuts to juice growth, or the downbeat conditions that prompted the Fed to act. That will depend, of course, on inflation and how the economy and corporate earnings respond to rate cuts.

"As long as weaker payroll data are not confirmed by sustainable increases in layoffs, the easing in monetary policy will likely be supportive for stocks," said Kevin Gordon, senior investment strategist at Schwab.

Turning away from the Fed, it's a busy off-season earnings day, with results expected early from Darden Restaurants and this afternoon from FedEx and Lennar. All could shed light on consumers after retail sales earlier this week showed strong spending. Some analysts say this is skewed toward the upper end of the income scale, and Powell, in his press conference, said anecdotal evidence supports that view.

If well-off people remain optimistic, that could help new home sales and Lennar's business, but new home sales have been lackluster for a while and many home builders have resorted to incentives. Median prices for new homes dropped 5.9% year over year in July, raising concerns about home builder margins even as they face higher costs due to tariffs.

FedEx results are often a good barometer of both business and consumer spending, and the market reacted positively the last time it reported as the company focused on cost cuts. Freight demand continued to be a drag on business, however.

Initial weekly jobless claims are in the spotlight today after the Fed officially took action to boost the sagging job market. The report, due at 8:30 a.m. ET, is expected to show 245,000 new claims, down from a surprisingly high 263,000 the previous week. That figure may have been affected by a spike in claims from Texas where the economy was hit by tragic flooding earlier this year and the deadline for unemployment assistance recently got extended.

This afternoon brings data on net long-term Treasury market inflows, which might get more attention than usual because it tells the story of foreign interest in U.S. assets. That that came under a microscope earlier this year amid tariff concerns.

In data yesterday, August housing starts fell 8.5% month over month to a seasonally adjusted annual rate of 1.307 million units, below the Briefing.com consensus of 1.375 million. Building permits fell 3.7% month over month to 1.312 million on a seasonally adjusted basis, below the 1.37 million consensus view.

The Bank of England makes its rate decision this morning and the Bank of Japan follows tomorrow. Both are expected to hold rates steady.

Also overseas, Nvidia suffered a blow yesterday when the Financial Times reported that China requested that companies not buy chips from Nvidia. Earlier this week, Beijing accused Nvidia of violating the country's anti-monopoly laws. Shares of the AI giant fell 2.5% Wednesday, while competitor Broadcom suffered even worse losses.

Elsewhere Wednesday, major indexes swung back and forth after the rate cut, initially rising, then falling moderately, then recovering back to near unchanged for the S&P 500 index. The exception was the small cap Russell 2000 index, which held onto modest post-Fed gains. Smaller companies are often more rate sensitive, and the Russell has heavy exposure to regional banks, which tend to do better in a low-rate environment.

Consumer-oriented companies and banks performed well on the S&P 500 index after the rate cut, with Netflix, Wynn Resorts, Morgan Stanley, Delta Air Lines, Visa, and Procter & Gamble climbing. Tesla resumed its rally. But the tech-heavy Nasdaq was weighed down by Nvidia. Home builders, another rate-sensitive sector, mostly fell Wednesday despite the lower rates, perhaps hurt by expectations that the Fed's outlook would be more dovish.

On a sector basis, financials, consumer staples and materials led the way Wednesday. Info tech finished dead last.

The Dow Jones Industrial Average® ($DJI) rose 260.42 points Wednesday (+0.57%) to 46,018.32; the S&P 500 index (SPX) fell 6.41 points (-0.10%) to 6,600.35, and the Nasdaq Composite® ($COMP) dropped 72.63 points (-0.33%) to 22,261.33.