Fed Cuts Rates as Expected; Powell Says December Move Uncertain
The U.S. Federal Reserve delivered a widely anticipated quarter-point rate cut on Wednesday, lowering its policy range to 3.75%–4.00% in a 10–2 vote. The central bank also announced plans to restart limited Treasury purchases to ease tightening liquidity conditions in money markets — a move aimed at preventing further stress in short-term funding.
The decision was seen by investors as a preemptive step to support a cooling labor market and offset growth risks amid the ongoing government shutdown and trade uncertainties.
Powell Cautions Against Assuming Another Rate Cut
Fed Chair Jerome Powell said policymakers remain divided over the future path of monetary policy and warned that another rate cut in December is not guaranteed. Powell emphasized the Fed’s data-driven approach, noting that the absence of complete economic data — due to the government shutdown — makes forecasting more difficult.
“Markets should not assume another rate cut by year-end,” Powell said, striking a measured tone that investors interpreted as cautious.
Market Reaction
- Stocks: The S&P 500 reversed early gains to trade down 0.1% in volatile session.
- Bonds: The 10-year Treasury yield rose 7.5 basis points to 4.056%, while the 2-year yield climbed 8 basis points to 3.575%.
- Forex: The U.S. dollar index strengthened 0.6% to 99.24, while the euro slipped 0.5% to $1.1594.
Analysts React: Division and Uncertainty Ahead
Analysts largely agreed that the rate cut was expected, but Powell’s remarks dampened hopes for further easing this year.
- Uto Shinohara, Mesirow Currency Management, said the combination of a hawkish dissent and Powell’s cautious message boosted the dollar and pressured risk assets.
- Keith Lerner, Truist Advisory, noted that Powell tried to maintain “flexibility and optionality,” calling tariffs a one-time inflationary factor.
- Michael Rosen, Angeles Investments, said the move reflects “tension within the Fed” as inflation remains above target, adding that long-term earnings strength should continue to support equities.
- Tony Welch, SignatureFD, observed that “softening labor data and weak consumer confidence” justified the cut, but predicted that December could mark the final cut of this cycle.
- Dimitri Silva, Reams Asset Management, described the move as an “insurance cut” to safeguard employment, not the start of a deeper easing cycle.
A Divided Committee and Cautious Tone
Several analysts highlighted the internal split within the FOMC, with one member dissenting in favor of a 50-basis-point cut and another preferring no change.
Matt Miskin, Manulife John Hancock Investments, said the division “leaves a lack of clarity” but noted that stopping quantitative tightening (QT) was a dovish signal.
Brian Jacobsen, Annex Wealth Management, added that ending QT made sense to prevent a short-term debt market squeeze, describing the Fed’s message as cautious but predictable.
Broader Implications for Markets and Consumers
Michele Raneri, TransUnion, noted that even a modest rate cut can have a meaningful effect on consumer credit and mortgage rates, which have already dropped to their lowest level in over a year.
Meanwhile, Michael Brown, Pepperstone, said the move — the Fed’s second consecutive rate cut — signals that policymakers are prioritizing labor market stability over inflation risks for now.
Across markets, investors expect the Fed to remain data-dependent heading into 2025, with uncertainty surrounding the pace of further easing and the economic impact of the extended government shutdown.
