Viewpoint: The Fed decision — a cut today, but another in December “is not a forgone conclusion…”

The Fed decision — a cut today, but another in December “is not a forgone conclusion…”

The U.S. Federal Reserve (Fed) policy-setting Federal Open Market Committee (FOMC) met market expectations by delivering another 25-basis-point reduction in the Fed fund rate target range (now down to 3.75% to 4.00%) and also announced that the they will soon stop allowing maturing securities to roll off its balance sheet later this year (proceeds from maturing agency mortgage-backed securities will be rolled into Treasuries starting December 1), which was as expected as well, following Fed Governor Powell’s speech¹ on the topic two weeks ago.

The statement accompanying today’s* policy announcement² provided little by way of change in terms of the assessment from its previous iteration (text reproduced below for reference, with the additions and deletions versus September³ highlighted by me), though it did pay some lip service to the dearth of official data due to the U.S. federal government shutdown.

As well, in addition to uber-dove Stephen Miran again dissenting in favour of a larger cut (looking for 50 basis points today, just as he did in September), there was a dissent from Kansas City Fed president Jeffrey Schmid, who preferred to keep rates where they were. This is the third consecutive meeting with a dissent (longest streak since 2019) and the first time since September 2019 that there were dissents in opposite directions (and just the third time this has happened in the last 35 years, with 2013 being the only other instance; there is a great database on this⁴ curated by the St. Louis Fed for those interested). The recent slate of speeches from FOMC participants (not to mention the last “dot plot”⁵) has shown varied opinions on the path for monetary policy, so this is not exactly a significant surprise.

Moreover, it remains the case that the majority of FOMC voters were on the same page, suggesting that there was nothing necessarily that would dispel market expectations that had aligned with the last meeting’s “median dot”, which pointed toward another 25-basis-point cut at the final FOMC meeting in December, and there was negligible initial market response.

The post-meeting press conference, however, saw Governor Powell rock the boat. In his opening statement⁶, Powell explicitly noted that there were “strongly differing views about how to proceed in December” and that another cut at the next meeting “is not a forgone conclusion — far from it”, emphasizing that “policy is not on a preset course.” This was in the prepared text, so it’s not an off-the-cuff comment, and it has the potential to make the minutes of the upcoming November 19 meeting a must-read.

Further, while concerns over the downside risks to the job market moved to the forefront over the summer and prompted the “risk management” cuts (Powell noted that “logic” also applied today), the Governor appeared somewhat more sanguine on the issue today, despite the data drought and highlighted the “tension between our employment and inflation goals”, suggesting that elevated inflation remains top of mind for more than a few on the FOMC.

The lack of overt dovishness saw market-implied probability of a December cut fall from nearly 100% to 68%, driving a sharp move higher in market rates and a bear-flattening of the curve, while equities abruptly pared earlier gains.

From my lens, the communication today suggest that the Fed wants some optionality heading into the December meeting knowing that a possible prolonged government shutdown may well leave them flying blind, even if they have access to data that they believe would let them know “if something material were developing in the economy” — to paraphrase Winston Churchill, the oft-revised government-prepared official statistics are the worst data, except for everything else.

A 25-basis point cut seems like it is still a base-case, at this point, for the next meeting (it was in the projections for the majority of the FOMC participants just seven weeks ago, and there have not exactly been material shifts in the outlook since, based on available data). Still, it is not a sure thing — especially if the official dataflow is running dry, which, in turn, puts market expectations for almost 100bps of further cuts (compared to just 25bps as per the “median dot”; these will get updated at the next meeting) next year into doubt should the economy manage to remain on the expected track.

Press Release

September 17 October 29, 2025

Federal Reserve issues FOMC statement
For release at 2:00 p.m. EDT

Recent Available indicators suggest that growth of economic activity has been expanding at a moderated pace in the first half of the year. Job gains have slowed this year, and the unemployment rate has edged up but remains low through August; more recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen rose in recent months.

In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 to 4-1/4 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee decided to conclude the reduction of its aggregate securities holdings on December 1 will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Alberto G. Musalem; Jeffrey R. Schmid; and Christopher J. Waller. Voting against this action was were Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/2 percentage point at this meeting, and Jeffrey R. Schmid, who preferred no change to the target range for the federal funds rate at this meeting.

Fed funds rate target midpoint & expectations
(percent)

Source: Guardian Capital, based on data from the U.S. Federal Reserve and Bloomberg to October 29, 2025

_____________
David Onyett-Jeffries
David Onyett-Jeffries is Vice President, Economics & Multi Asset Solutions, at Guardian Capital LP (GCLP). He provides macroeconomic guidance to GCLP and its affiliates. Additionally, he is a portfolio manager of GCLP’s multi-asset portfolios and funds and works closely with GCLP’s Directed Outcomes team.

¹ Board of Governors of the Federal Reserve System, Understanding the Fed’s Balance Sheet, Chair Jerome H. Powell at the 67th Annual Meeting of the National Association for Business Economics, Philadelphia, Pennsylvania, October 14, 2025, https://www.federalreserve.gov/newsevents/speech/powell20251014a.htm
² Board of Governors of the Federal Reserve System, Press Release, Federal Reserve issues FOMC statement, October 29, 2025, https://www.federalreserve.gov/newsevents/pressreleases/monetary20251029a.htm
³ Board of Governors of the Federal Reserve System, Press Release, Federal Reserve issues FOMC statement, September 17, 2025, https://www.federalreserve.gov/newsevents/pressreleases/monetary20250917a.htm
⁴ Federal Reserve Bank of St. Louis, On the Economy Blog, A History of FOMC Dissents, September 16, 2014, https://www.stlouisfed.org/on-the-economy/2014/september/a-history-of-fomc-dissents
⁵ Board of Governors of the Federal Reserve System, Monetary Policy, Summary of Economic Projections, September 17, 2025, https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20250917.pdf
⁶ Federalreserve.gov, Media Center, Transcript of Chair Powell’s Press Conference Opening Statement, October 29, 2025, https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20251029.pdf

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Published: October 29, 2025