The Federal Reserve cut interest rates as expected, but Chair Jerome Powell's hawkish signals during the post-meeting press conference poured cold water on market expectations for another rate cut before year-end.

Nick Timiraos, a Wall Street Journal reporter often referred to as the "Fed Whisperer," noted in his latest analysis that Powell's unusually firm stance not only highlighted growing divisions within the FOMC but also underscored heightened uncertainty in the monetary policy path amid economic data "flying blind."

On Wednesday local time, the Fed announced a 25-basis-point cut to the benchmark rate, lowering the federal funds target range to 3.75%-4%, marking the lowest level in three years and the second consecutive meeting with a rate reduction. However, the focus quickly shifted to Powell’s outlook on future policy. He explicitly pushed back against market expectations that a December rate cut was a "done deal," stating the scenario was "far from certain."

Powell’s remarks had an immediate impact, reversing market optimism. The probability of a December rate cut plunged from 95% to 65%. The Dow Jones Industrial Average and S&P 500 erased intraday gains, with the Dow closing down 0.2% and the S&P 500 dipping slightly. The 2-year Treasury yield, highly sensitive to rate expectations, surged 9.2 basis points to 3.585%, its largest single-day jump since early July.

Timiraos observed that Powell’s comments made it clear the easiest phase of this easing cycle may be over, as "a growing number of officials" questioned the need for further cuts. Meanwhile, with each successive reduction, the question of when to pause becomes more pressing.

**Internal Divisions Emerge: A Three-Way Split in Voting** The latest rate decision passed with 10 votes in favor and 2 against, revealing stark divisions within the committee. Kansas City Fed President Jeffrey Schmid dissented, preferring no rate cut, while Fed Governor Stephen Miran argued for a larger 50-basis-point reduction.

This "three-way split" in voting aligns with Powell’s acknowledgment of "strongly differing views" among policymakers. He admitted a "growing chorus" of officials skeptical about further easing.

Although a narrow majority of officials projected two more rate cuts this year in September’s economic forecasts—leading markets to price in a December move—a significant faction believed no further cuts should follow September’s. These officials remain more concerned about inflation, which has stayed above the Fed’s 2% target in recent years and stalled this year, partly due to Trump-era tariffs pushing up goods prices.

Powell’s hawkish stance surprised markets heavily betting on a December cut, leaving analysts divided on the path ahead.

Vincent Reinhart, Chief Economist at Dreyfus and Mellon and former Fed senior adviser, argued that given the data vacuum, "the bar is high for data to prove further easing isn’t justified," adding, "It’s really hard for them [the Fed] not to cut in December. It’s easier to keep going than to stop."

However, James Bullard, Dean of Purdue’s business school and former St. Louis Fed President, called the December cut outlook "more nuanced than markets currently think." He cited strong consumer spending, economic growth, and recent inflation setbacks as potential reasons to slow the pace of cuts. "You’re betting too much on a slowdown in nonfarm payrolls," Bullard said, questioning whether policymakers have adjusted to a "perfectly acceptable" new normal of just 50,000 monthly job gains.

**Government Shutdown Creates Data "Blackout," Complicating Rate Decision** The policy debate is further complicated by a data vacuum caused by the government shutdown. Powell noted that if missing data leads to "very high uncertainty" about the economic outlook, it could itself justify "a case for proceeding carefully."

Normally, inter-meeting economic reports help bridge differences among officials. But now, especially without key labor market indicators, they lack the information needed to resolve disagreements.

William English, a Yale School of Management professor and former Fed senior adviser, told Timiraos that the data gap means officials "haven’t learned much since September," leaving their stance similar but with "a wider range of uncertainty around it."

As previously noted, Bank of America outlined several scenarios:

1. If the government reopens by late November, markets might see a "stale" September jobs report before the December meeting. Weak data could reduce hawkish resistance, but even strong figures may be dismissed as outdated. 2. If the shutdown ends by early November, allowing two reports (September and October) before the meeting, steady unemployment and robust activity could make a December pause a real option. 3. In the best-case scenario—a swift reopening—three reports (September, October, November) could provide a "rule of thumb": A November jobless rate ≤4.3% may warrant no cut; ≥4.5% could prompt action; at 4.4%, it’d be a "close call."

**Balancing Inflation Fears Against Slowing Employment** Timiraos noted the Fed’s policy debate centers on balancing inflation control with responding to economic slowdowns. Some officials fear over-easing could overheat the economy, keeping inflation above target, while record stock prices fueled by rate-cut bets raise financial stability concerns.

Others warn against ignoring trade policy shifts and past rate hikes’ lagged effects, particularly on rate-sensitive sectors like housing, which are squeezing low-income consumers and small businesses. Recently, several major U.S. employers announced white-collar job cuts.

The labor market sits at the heart of this debate. Despite firmer inflation readings, summer job reports showed sharp slowdowns, prompting the Fed’s return to easing. Three-month average payroll gains through August were ~29,000, far below the prior year’s 82,000. Policymakers are trying to discern whether slower hiring reflects fewer job seekers or weaker demand.

Timiraos concluded that without clear evidence of substantial labor market deterioration, securing support for cuts beyond 25 basis points will be tough. At the same time, the question of when to stop cutting grows more urgent with each move.