The Federal Open Market Committee (FOMC) voted 10-2 to lower the benchmark overnight lending rate to a range of 3.75%–4%.
In addition to the rate cut, the Fed announced it will end its balance sheet reduction program (quantitative tightening, QT) on December 1.
The statement reiterated policymakers' concerns about the labor market, noting that "downside risks to employment have increased in recent months."
The Federal Reserve approved its second consecutive rate cut on Wednesday, but Chair Jerome Powell cast doubt on whether another cut would follow in December, sending shockwaves through markets.
The FOMC's decision to lower rates came with a 10-2 vote. Governor Stephen Miran dissented, advocating for a faster 50-basis-point cut, while Kansas City Fed President Jeffrey Schmid opposed the move entirely, arguing against any reduction. Miran, a Trump appointee, has consistently pushed for aggressive rate cuts.
The benchmark rate influences pricing for auto loans, mortgages, and credit cards, among other consumer financial products.
The post-meeting statement provided no guidance on December’s policy direction. In September, officials had hinted at three potential rate cuts this year, with December being the final meeting. However, Powell cautioned against assuming another cut is guaranteed.
"Committee members were clearly divided on the appropriate action for December," Powell said at the press conference. "A further rate cut in December is far from a done deal—quite the opposite."
He added that a growing number of the Fed’s 19 policymakers believe the central bank should "wait at least one cycle" before acting again. CME FedWatch data showed market expectations for a December rate cut dropped from 90% to 67% following Powell’s remarks.
Stocks initially rose after the decision but reversed gains during Powell’s press conference before gradually recovering later in the session.
The rate cut came amid a lack of economic data due to the government shutdown, leaving key indicators like nonfarm payrolls and retail sales unavailable.
The committee acknowledged uncertainty in its statement, revising its economic assessment: "Available data suggest economic activity is expanding at a moderate pace. Job growth has slowed this year, and while the unemployment rate remains low as of August, recent indicators align with this trend. Inflation has risen since earlier this year and remains somewhat elevated."
This language marked a shift from September’s statement, which described the economy as "slowing." The latest update also emphasized rising downside risks to employment.
Even before the shutdown, signs pointed to slowing hiring despite controlled layoffs. Meanwhile, inflation remains well above the Fed’s 2% target, with CPI data showing a 3% annual rate, driven by energy prices and tariffs.
The Fed aims to balance "maximum employment" with "price stability," but officials now see employment risks as slightly outweighing inflation risks.
Beyond rates, the Fed announced it will halt QT, which has reduced its Treasury and mortgage-backed securities holdings by $2.3 trillion since inception. The central bank will now reinvest proceeds from maturing mortgage securities into short-term Treasuries.
Markets had anticipated QT’s end by year-end. During the pandemic, the Fed’s balance sheet ballooned from $4 trillion to $9 trillion. Powell stated that while balance sheet normalization is necessary, it won’t return to pre-pandemic levels.
Evercore ISI analyst Krishna Guha predicted the Fed may resume asset purchases by early 2026 to support "organic growth." Typically, the Fed avoids easing during economic expansions or bull markets—yet major indices continue hitting record highs amid tech strength and robust earnings.
Historically, rate cuts in such environments have fueled further market gains. However, looser policy risks reigniting inflation, the very issue that previously forced the Fed into aggressive tightening.