October FOMC Update

Powell Haunts the Possibility of a December Cut

As expected, the Federal Reserve cut the fed funds target range by 25 bps, bringing it to 3.75%–4.00%. There were two dissenting votes, but notably in opposite directions: Fed Governor Miran favored a larger 50 bp cut, while Kansas City Fed President Schmid preferred to leave rates unchanged.

FOMC Statement

The Fed’s statement struck a mixed tone, reflecting divergent views among Committee members:
· The assessment of economic activity was upgraded, noting that activity “has been expanding at a moderate pace” — an improvement from last month’s characterization that growth had “moderated in the first half of the year.”
· The statement acknowledged a slowdown in job gains, while also noting that inflation has moved higher “since earlier in the year.”
· It reiterated that uncertainty around the economic outlook remains elevated.

Fed Chair Powell Press Conference

In his statement, Fed Chair Powell struck a notably hawkish tone, pushing back against market expectations of a December rate cut. He emphasized that “a further reduction in the policy rate at the December meeting is not a foregone conclusion—far from it.”

Importantly, this comment came from his prepared remarks, not as an off-the-cuff response during the press conference — underscoring the Fed’s deliberate effort to temper easing expectations.

Powell also highlighted the range of differing views within the FOMC, noting the internal debate over the balance of risks:
· He acknowledged “strongly differing views” within the FOMC, with some primarily concerned about a slowing labor market, while others were concerned about still elevated inflation.
· Powell remarked that a “growing chorus feels like maybe the Fed should wait a cycle.”
· Some of the committee members think “it’s time to maybe take a step back” and see whether there really are downside risks to the labor market or see whether the stronger growth is real.
· He added, “I think there are people on the committee who have higher estimates of the neutral rate.”
· On the recent lack of government data, Powell used a vivid analogy: “What do you do if you’re driving in the fog? You slow down.”

Markets were largely unchanged until Chair Powell stated that a December rate cut is not a foregone conclusion. Following his hawkish remarks, Treasury yields moved higher, with both the 2-year and 10-year yields rising about 10 bps on the day.

Equities were mixed — the Dow closed slightly lower, the S&P 500 was flat, and the Nasdaq eked out a modest gain.

Despite Powell’s efforts to downplay the likelihood of a December rate cut, Fed Funds futures still reflect a high probability of easing, though lower than before the meeting. The market is now pricing in a 70% chance of a December cut, down from about 90% prior to the FOMC meeting.