CITIC SEC released a research report stating that the Federal Reserve cut interest rates by 25 basis points (bps) at its October 2025 meeting, in line with market expectations. Powell's assessment of the economic situation remained similar to September, noting significant divergence within the FOMC over whether to cut rates again in December and emphasizing that a December rate cut is not a "foregone conclusion." However, CITIC SEC believes that avoiding a December rate cut would require the U.S. government to resume normal operations and release economic data discouraging further cuts—a higher bar than continuing monetary easing.

Among the 12 voting members in 2025, CITIC SEC expects more policymakers to favor a December rate cut, predicting it could be a "close call." The firm maintains its view that the Fed will deliver another 25bps cut at the next meeting. Following Powell’s tempered rate-cut expectations, the dollar and Treasury yields rose, while U.S. stocks and gold weakened. Short-term markets may continue pricing in reduced easing expectations.

**Key Takeaways from the October 2025 FOMC Statement:** 1) **Rates:** The committee cut the federal funds rate to 3.75%-4.00%, as anticipated. The decision was not unanimous, with interim Governor Milan advocating a 50bps cut and Kansas City Fed President Schmid favoring no change. 2) **Balance Sheet:** The Fed maintained its runoff pace ($5B/month for Treasuries, $35B for MBS) but announced QT cessation starting December 1. 3) **Economy:** Indicators suggest moderate expansion. Job growth has slowed, unemployment edged up but stayed low through August, and inflation remains elevated. The committee highlighted rising downside risks to employment.

**Powell’s Press Conference Highlights:** - **Economic Outlook:** Similar to September, Powell expects gradual labor market cooling and elevated inflation (core PCE at 2.3%-2.4% excluding tariffs), framing the cut as "risk management." - **Government Shutdown Impact:** Reliance on alternative data (e.g., state-level jobless claims, private-sector inflation/wage metrics) and the Beige Book, which noted "softening labor demand" and tariff-driven cost pressures. The next Beige Book (November 26) could be pivotal if shutdown persists. - **AI & QT:** AI investments are rate-insensitive, but consumer spending outweighs their economic impact. QT cessation will shift reinvestments to T-Bills, shortening the Fed’s portfolio duration. - **December Rate Cut:** Powell called it contentious, citing differing economic forecasts and risk appetites. A pause would require resumed government operations and unfavorable data—conditions CITIC SEC views as less likely than another cut.

**Voter Projections:** Per September’s dot plot, CITIC SEC estimates at least six 2025 voters (including Powell, Waller, and Williams) support a December cut, while up to five may oppose. Markets now price a 68.4% chance of a December cut (vs. 85.5% pre-meeting).

**Risks:** Unexpected inflation rebound, labor market strength, or aggressive Trump tariffs.