U.S. Federal Reserve Chairman Jerome Powell speaks during a press conference after the Monetary Policy Committee meeting in Washington, DC, October 29, 2025.
Jim Watson | AFP | Getty Images
The Federal Reserve approved its second consecutive interest rate cut on Wednesday, but Chairman Jerome Powell jolted markets by casting doubt on whether another rate cut would occur in December.
By a 10-2 vote, the central bank’s Federal Open Market Committee lowered the benchmark overnight borrowing rate to a range of 3.75-4%. In addition to the interest rate move, the Fed announced it will end tapering its asset purchases, known as quantitative tightening, on Dec. 1.
Governor Stephen Milan voted against it again, hoping the Fed would act more quickly with a half-point rate cut. Kansas City Fed President Jeffrey Schmidt also voiced his opposition to Mr. Milan, but for the opposite reason: He wanted the Fed to not cut rates at all. Milan, an appointee of President Donald Trump, has been pushing the committee to cut interest rates quickly.
This rate is also set as a benchmark for a variety of consumer products such as auto loans, home loans, and credit cards.
A statement after the meeting gave no direction on the committee’s plans for December. At a September meeting, officials indicated there could be a total of three cuts this year. The Fed will meet again in December.
However, Powell cautioned against thinking that a rate cut at the next meeting was a certainty.
“In the committee’s discussions at this meeting, there were very different views on how to proceed in December,” Powell said at a press conference after the meeting. “A further reduction in policy rates at the December meeting is not a foregone conclusion. We are far from a conclusion.”
He then added that there is “a growing chorus” among the Fed’s 19 officials to “wait at least one cycle” before cutting rates again. Traders lowered the probability of a December rate cut to 67% from 90% a day earlier, according to CME Group’s FedWatch.
Stock prices, which had risen after the initial announcement of the decision, began to fall after the chairman’s remarks. The major averages gradually recovered during the session with reporters.
This rate cut comes despite the fact that the Fed has been essentially blind on economic indicators lately.
The government has suspended all data collection and reporting, with the exception of the consumer price index released last week, meaning key indicators such as non-farm payrolls, retail sales and a host of other macro data are unavailable.
In a post-meeting statement, the committee acknowledged the uncertainties associated with a lack of data and limited how it classified broad economic conditions.
“Available indicators suggest that economic activity is expanding at a moderate pace. Employment growth has slowed this year and the unemployment rate rose slightly, but remained low through August. Recent indicators are consistent with these trends,” the statement said. “Inflation has been rising since the beginning of the year and remains somewhat elevated.”
Each of these features represented tweaks from the September statement. The most important change was in the view of broader economic activity. In September, the FOMC said activity had moderated.
“Downside risks to employment have increased in recent months,” the statement said, reiterating policymakers’ concerns about the labor market.
Even before the shutdown, evidence was beginning to accumulate that while layoffs were under control, the pace of hiring was flat. At the same time, inflation remains well above the Fed’s annual target of 2%. Citing the importance of Social Security cost-of-living adjustments, the Consumer Price Index (CPI) report released last week showed an annual rate of 3%, pushed up by rising energy costs and several items directly or indirectly related to President Trump’s tariffs.
The Fed is trying to strike a balance between full employment and price stability. But officials have recently said they view the risks posed by the employment situation as slightly higher. Along with the rate decision, the Federal Reserve also announced the end of a process to reduce the amount of bonds it holds on the central bank’s $6.6 trillion balance sheet.
The program, also known as QT, removed about $2.3 trillion from the Fed’s portfolio of U.S. Treasuries and mortgage-backed securities. Instead of reinvesting maturity proceeds from securities, the Fed has allowed them to be rolled off the balance sheet at a limited level each month. However, there have been recent signs of a slight tightening of the short-term lending market, raising concerns that the contraction has gone far enough.
The implementation document accompanying this decision indicated that the Fed would convert proceeds from maturing mortgage securities into short-term bills.
Markets had recently begun to expect the Fed to end QT by October or the end of the year. The Fed has expanded its asset holdings during the coronavirus crisis, pushing its balance sheet from more than $4 trillion to nearly $9 trillion. Powell said the Fed recognizes the need to reduce its asset holdings but does not expect them to return to pre-pandemic levels.
In fact, Evercore ISI analyst Krishna Guha said he can foresee a scenario in which the Fed actually resumes purchases in early 2026 “for organic growth purposes” as market conditions change. The Fed rarely eases monetary policy during economic expansions or bull markets in stock prices. Although major average stock prices are unstable, they are hitting new record highs one after another, supported by further gains in big tech stocks and a solid earnings season.
History has shown that even if the Fed cuts interest rates under these circumstances, the market will continue to rise. But easy policy also poses the risk of higher inflation, a situation that forced the Fed to make a series of aggressive interest rate hikes.
Correction: This article has been updated to correct that Jeffrey Schmidt is the president of the Kansas City Fed and that the Fed raised interest rates as inflation spiked.
