The Federal Reserve lowered its benchmark interest rate by a quarter-point for the second consecutive meeting, but Chair Jerome Powell emphatically signalled that further reductions this year are far from assured. The move reflects a deepening tension between the central bank’s twin mandates of supporting employment and keeping inflation under control, alongside a growing internal divide and a blackout of key economic data due to a government shutdown.
The Latest Rate Cut and Its Context
At its October meeting, the Fed reduced its federal-funds target range from 4.00 per cent to 3.75–4.00 per cent. This followed a similar reduction in September and is part of a cautious shift toward looser policy amid signs of labour-market softening. Many policymakers expressed concern that further rate cuts require firmer data to justify them. The Fed’s own policy statement explicitly referenced the absence of up-to-date official statistics, citing the ongoing federal government shutdown.
Chair Powell, in his post-meeting press conference, noted that the committee is “going to collect every scrap of data we can find, evaluate it and think carefully about it.” He added that “if you asked me could it affect … the December meeting – I’m not saying it’s going to, but yes, you could imagine that.” In other words: a December cut is no longer a given.
The Fed’s decision drew two dissents: Governor Stephen Miran called for a 50-basis-point cut, while Kansas City Fed President Jeffrey Schmid opposed any cut given lingering inflation risks. This 10-2 vote signals a sizeable policy divide at a time when the economy is sending contradictory signals.
Why the Fed Cut — and Why It May Pause
The decision to cut reflects growing concern about employment trends. Job creation has slowed, layoffs in some sectors have increased modestly, and the labour market—long the Fed’s relative strength—is showing cracks. The committee judged there was enough risk of further weakening in jobs to warrant another easing move. At the same time, inflation remains elevated—consumer prices are running above the Fed’s 2 per cent target—and the central bank considers its current policy stance “modestly restrictive.” Powell reiterated that inflation risks “are not far from our 2 per cent goal,” but that ignoring inflation would not be appropriate.
However, several factors suggest the Fed may pause its easing cycle. First is the lack of reliable government economic reports caused by the shutdown. Without fresh data on payrolls, inflation (for example the PCE index) and spending, policymakers are operating with less clarity. Powell compared the situation to driving in fog: when visibility is poor, you slow down.
Second is the internal divide at the Fed. Some members argue the risk of inflation re-surfacing—particularly via still-elevated goods prices and tariffs—remains high; others worry the labour market could slip further. This split means any further rate move must be more carefully justified. As Powell put it: “A further reduction … is not a foregone conclusion. Far from it.”
Thirdly, markets had been pricing in a December cut, but those odds have dropped significantly following Powell’s remarks. With inflation running above target, policy is unlikely to remain on an autopilot path of cuts. The Fed must weigh whether the modest labour-market softening justifies additional easing, given inflation and the unusual data environment.
What This Means for Borrowers, Savers and Markets
For borrowers, lower rates typically reduce the cost of financing homes, cars and businesses. With the Fed at 3.75–4.00 per cent, mortgage and loan rates may face downward pressure, but transmission is always delayed and uneven. Some lenders have already begun adjusting, yet many consumers may still feel little relief because lending rates often lag Fed moves.
For savers, the opposite holds: yields on savings accounts and CDs may continue to drift downward. Rate cuts reduce the floor on deposit rates, and banks often pass through only part of the benefit. The current cut is modest, but if the Fed stays on hold, deposit rates may stabilise rather than fall further.
For financial markets, the Fed’s message is significant. Investors had been broadly expecting two or more cuts this year; the Fed’s signal that December is not assured introduces uncertainty. Bond yields and risk-asset valuations are sensitive to path assumptions about policy. A pause or end to cuts could trigger re-pricing of equities and fixed-income markets.
The Strategic Dilemma Facing the Fed
The Fed’s leadership faces a difficult calibration problem. On one hand, a rapid labour-market downturn would undermine the mandate of maximum employment. On the other, persistent inflation would undermine price stability and the Fed’s credibility. With this rate cut, policymakers opted for caution: support the economy modestly but retain flexibility.
Another dimension is the global backdrop—higher tariffs, supply-chain disruptions and international threats add complexity to domestic policy. The Fed must ask not only what the U.S. economy is doing, but how global risks feed into inflation and growth here. The shutdown of key data streams means the Fed is increasingly relying on private surveys, regional reports and business contacts—less precise than government statistics. That diminishes conviction for large policy moves.
Finally, there is the optics of independence. Fed officials are under pressure from the White House and markets to ease aggressively, but have repeatedly emphasised that policy is data-driven, not politically directed. Powell’s insistence that policy is “not on a preset course” reinforces that message.
Several indicators will determine whether the Fed proceeds with further cuts. One is employment: the next official payrolls report, when available, will be scrutinised for signs of sustained weakness rather than a one-off soft patch. Another is inflation: whether PCE inflation re-accelerates or decelerates toward target. And third, the availability of reliable economic data: if the government shutdown continues, the data gap will widen, increasing uncertainty.
Policy-wise, watch for shifts in language at the next meeting. If dissent at the Fed increases or internal dot-plots show fewer cuts ahead, markets may adjust expectations. Conversely, if labour-market weakness deepens sharply, the Fed may decide to act again—even this year. But as things stand, Powell is flagging that the next move may not happen in December—or perhaps may be the last one in 2025.
The Fed’s strategy now appears to be: cut now to address risk of job market deterioration, then pause while monitoring inflation and growth amid limited visibility. That path underscores how much the economic environment has changed: rather than aggressive easing, the Fed is opting for conditional flexibility.
(Source:www.straitstimes.com)
The Latest Rate Cut and Its Context
At its October meeting, the Fed reduced its federal-funds target range from 4.00 per cent to 3.75–4.00 per cent. This followed a similar reduction in September and is part of a cautious shift toward looser policy amid signs of labour-market softening. Many policymakers expressed concern that further rate cuts require firmer data to justify them. The Fed’s own policy statement explicitly referenced the absence of up-to-date official statistics, citing the ongoing federal government shutdown.
Chair Powell, in his post-meeting press conference, noted that the committee is “going to collect every scrap of data we can find, evaluate it and think carefully about it.” He added that “if you asked me could it affect … the December meeting – I’m not saying it’s going to, but yes, you could imagine that.” In other words: a December cut is no longer a given.
The Fed’s decision drew two dissents: Governor Stephen Miran called for a 50-basis-point cut, while Kansas City Fed President Jeffrey Schmid opposed any cut given lingering inflation risks. This 10-2 vote signals a sizeable policy divide at a time when the economy is sending contradictory signals.
Why the Fed Cut — and Why It May Pause
The decision to cut reflects growing concern about employment trends. Job creation has slowed, layoffs in some sectors have increased modestly, and the labour market—long the Fed’s relative strength—is showing cracks. The committee judged there was enough risk of further weakening in jobs to warrant another easing move. At the same time, inflation remains elevated—consumer prices are running above the Fed’s 2 per cent target—and the central bank considers its current policy stance “modestly restrictive.” Powell reiterated that inflation risks “are not far from our 2 per cent goal,” but that ignoring inflation would not be appropriate.
However, several factors suggest the Fed may pause its easing cycle. First is the lack of reliable government economic reports caused by the shutdown. Without fresh data on payrolls, inflation (for example the PCE index) and spending, policymakers are operating with less clarity. Powell compared the situation to driving in fog: when visibility is poor, you slow down.
Second is the internal divide at the Fed. Some members argue the risk of inflation re-surfacing—particularly via still-elevated goods prices and tariffs—remains high; others worry the labour market could slip further. This split means any further rate move must be more carefully justified. As Powell put it: “A further reduction … is not a foregone conclusion. Far from it.”
Thirdly, markets had been pricing in a December cut, but those odds have dropped significantly following Powell’s remarks. With inflation running above target, policy is unlikely to remain on an autopilot path of cuts. The Fed must weigh whether the modest labour-market softening justifies additional easing, given inflation and the unusual data environment.
What This Means for Borrowers, Savers and Markets
For borrowers, lower rates typically reduce the cost of financing homes, cars and businesses. With the Fed at 3.75–4.00 per cent, mortgage and loan rates may face downward pressure, but transmission is always delayed and uneven. Some lenders have already begun adjusting, yet many consumers may still feel little relief because lending rates often lag Fed moves.
For savers, the opposite holds: yields on savings accounts and CDs may continue to drift downward. Rate cuts reduce the floor on deposit rates, and banks often pass through only part of the benefit. The current cut is modest, but if the Fed stays on hold, deposit rates may stabilise rather than fall further.
For financial markets, the Fed’s message is significant. Investors had been broadly expecting two or more cuts this year; the Fed’s signal that December is not assured introduces uncertainty. Bond yields and risk-asset valuations are sensitive to path assumptions about policy. A pause or end to cuts could trigger re-pricing of equities and fixed-income markets.
The Strategic Dilemma Facing the Fed
The Fed’s leadership faces a difficult calibration problem. On one hand, a rapid labour-market downturn would undermine the mandate of maximum employment. On the other, persistent inflation would undermine price stability and the Fed’s credibility. With this rate cut, policymakers opted for caution: support the economy modestly but retain flexibility.
Another dimension is the global backdrop—higher tariffs, supply-chain disruptions and international threats add complexity to domestic policy. The Fed must ask not only what the U.S. economy is doing, but how global risks feed into inflation and growth here. The shutdown of key data streams means the Fed is increasingly relying on private surveys, regional reports and business contacts—less precise than government statistics. That diminishes conviction for large policy moves.
Finally, there is the optics of independence. Fed officials are under pressure from the White House and markets to ease aggressively, but have repeatedly emphasised that policy is data-driven, not politically directed. Powell’s insistence that policy is “not on a preset course” reinforces that message.
Several indicators will determine whether the Fed proceeds with further cuts. One is employment: the next official payrolls report, when available, will be scrutinised for signs of sustained weakness rather than a one-off soft patch. Another is inflation: whether PCE inflation re-accelerates or decelerates toward target. And third, the availability of reliable economic data: if the government shutdown continues, the data gap will widen, increasing uncertainty.
Policy-wise, watch for shifts in language at the next meeting. If dissent at the Fed increases or internal dot-plots show fewer cuts ahead, markets may adjust expectations. Conversely, if labour-market weakness deepens sharply, the Fed may decide to act again—even this year. But as things stand, Powell is flagging that the next move may not happen in December—or perhaps may be the last one in 2025.
The Fed’s strategy now appears to be: cut now to address risk of job market deterioration, then pause while monitoring inflation and growth amid limited visibility. That path underscores how much the economic environment has changed: rather than aggressive easing, the Fed is opting for conditional flexibility.
(Source:www.straitstimes.com)
