The Federal Reserve cut the Federal Funds rate yesterday by a quarter-point to a range of 1.75%-2.00%. This was the second rate cut in just seven weeks and was a bit controversial, even within the voting members of the Fed, as one of the seven voters preferred a steeper half-point cut, while another voter wanted no cut at all.
This split decision is reflective of the broader uncertainty surrounding the economy right now, as there are clear signs of slowing (both here in the US and especially abroad), but US conditions haven't yet reached the point where they are signalling anything clearly problematic.
The stock market fell initially on the rate-cut news, clearly wanting more, but perked up mid-way through Chairman Powell's press conference and ended the day mostly flat. The turnaround came when Powell said, "It's possible that we'll need to resume the organic growth of the balance sheet, earlier than we thought. That's always been a possibility and certainly is now." That was taken by some as a reference to possibly restarting Quantitative Easing — where the Fed intervenes in markets directly, adding liquidity by purchasing assets (bonds) — which has been the stock market's favorite drug over the past decade.
That said, the word "organic" in Powell's answer seems to imply allowing the Fed's balance sheet to increase gradually as the economy grows, without any dramatic QE resumption. But the market knows getting the QE conversation started is the proverbial crack in the door — the first step toward eventually getting those policies re-implemented.