As widely anticipated, the Federal Reserve cut interest rates by 25 basis points at its October FOMC meeting and announced it would halt balance sheet reduction in December to stabilize its securities portfolio. The only surprise was the dissent votes increasing from one to two. While Stephen Miran voted against the decision as expected, advocating for a 50-basis-point cut, Jeffrey Schmid unexpectedly took a hawkish stance by opposing any policy change.

The voting outcome further highlights growing divisions within the Fed over monetary policy, which had already surfaced in recent dot-plot discrepancies and conflicting remarks from officials. The hawkish dissent has exacerbated these rifts. The weakening consensus within the FOMC may stem from the lack of critical economic data—such as inflation figures—due to the government shutdown, as evidenced by the statement’s heavy reliance on outdated data.

Although current indicators show no significant improvement in the labor market or inflation—undermining the Fed’s dual mandate—the risks of unexpected deterioration in both areas are rising. Minor wording adjustments in the statement suggest the Fed anticipates slightly faster growth, which could benefit employment. However, this optimism may not offset potential short-term economic and hiring disruptions caused by the shutdown.

During the press conference, Fed Chair Jerome Powell acknowledged internal disagreements and discussed risks tied to the dual mandate. He noted heated debates over whether to cut rates again in December but emphasized no decision had been made, stating the outcome remains far from certain. Powell reiterated that rate cuts are risk-management measures, as labor market risks could outweigh inflation concerns and future uncertainties—underscoring the Fed’s data-dependent approach.

Overall, the decision aligns with DWS’s expectations, maintaining its forecast for rates to fall to a neutral level of around 3% within the next 12 months. However, the timing of further cuts remains unclear, and market optimism about consecutive Fed easing may be premature given current uncertainties.