Federal Reserve Chair Jerome Powell warns that another cut in December is "not foregone conclusion", after the central bank lowers rates for the second time this year [Image by Cryptodnes.bg]
(The Post News) – The Federal Reserve cut interest rates for the second time in a row on Wednesday, but Chairman Jerome Powell warned investors not to assume a cut in December. The action is the Fed’s effort to keep a decelerating job market going while also combating inflation and uncertainty created by a prolonged government shutdown.
By a 10-2 vote, the Federal Open Market Committee (FOMC) lowered its benchmark lending rate to a range of 3.75% to 4%, its lowest in three years. The rate influences the cost of borrowing on mortgages, auto loans, and credit cards so that the move could offer consumers some relief.
But Powell‘s dovish tone rattled markets. “A further easing at the December meeting is not a done deal,” he told reporters. “Far from it.”.
Fed Officials Split on Next Steps
Two officials dissented from the decision, underscoring sharp divisions within the central bank. Governor Stephen Miran preferred a more aggressive half-point cut, while Kansas City Fed President Jeffrey Schmid voted against reducing rates altogether. It was the first time since 2019 that FOMC members voted against a rate move in both directions.
Despite the split, Powell described the overall vote as a “solid endorsement” of easing policy to support hiring. “We’re trying to get to the end of this cycle with the labour market in a good place and inflation on its way to 2%,” he said.
Markets surged after the Fed decision but reversed course after Powell sounded uncertain for December. Traders shaved the chances of another rate cut in December from 90% to 67% after his remarks, according to the CME Group’s FedWatch tool.
The Fed faces an unusual challenge: setting policy without major economic reports. The partial shutdown of the federal government has halted the release of critical reports, including job growth, retail sales, and inflation.
Powell was aware of the risk of decision-making in the dearth of quality information. “What do you do when you’re driving in the fog? You slow down,” he said. “We’ll collect all the data we can find and proceed with caution.”
In a statement following the meeting, the Fed said available data indicate moderate economic growth, slower employment gains, and a low unemployment rate through August. Powell conceded that conditions since that time appear “stable” but not strong enough to justify tightening aggressively.
The central bank continues to balance between slowing job growth and inflation pressures. The Consumer Price Index (CPI) rose 3% in the most recent report, driven by rising energy prices and new tariffs from President Donald Trump’s trade policies. Powell expects those price increases to vanish as supply chains adjust.
“We think and hope that tariff-driven inflation will be temporary,” he said.
Nevertheless, Fed officials cautioned that “downside risks to employment have increased in recent months.” Large companies such as Amazon and Target recently said they would make substantial layoffs, contributing to worries about the direction of the labour market.
End of Quantitative Tightening
Along with the rate decision, the Fed announced it would end its balance sheet runoff program, or quantitative tightening, on December 1st. The program has taken more than $2.3 trillion of assets off the central bank’s books since 2022.
The Fed’s balance sheet, now at about $6.6 trillion, will no longer shrink and will be steady as the proceeds from rolling off mortgage-backed securities are put into short-term Treasury bills. The move is to prevent liquidity shortages in money markets.
Evercore ISI economist Krishna Guha further said that the decision can be a turning point. “We might even see the Fed resume asset purchases in 2026 for organic balance sheet growth if market conditions tighten,” he added.
With one meeting left in 2025, Powell indicated that the Fed’s next move depends on data that may not arrive in time. “Policy is not on a pre-set course,” he said. “We’ll act when we have a sufficient amount of visibility to make sound decisions.”
In the meantime, investors and consumers are left with a familiar mix of hope and caution: lower borrowing costs today but no guarantee of easier policy tomorrow.
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