Powell Labels December Rate Cut as “Far From” Certain

Yields rise following Chair Powell’s hawkish FOMC presser. Rate volatility was muted today until the aftermath of today’s FOMC meeting, where the Fed cut policy rates by 25 bps. In the following press conference, Powell pushed back against market expectations for a near-certain December rate cut, fueling a 5-9 bps climb across the yield curve. The 2-year yield closed 11 bps higher at 3.60% while the 10-year yield closed 9 bps higher at 4.08%. Meanwhile, equities were rattled by the divided Fed, with the S&P 500 reversing its gains to end flat and the NASDAQ up 0.55% on the day after hitting an intraday high of 24,017.50.

Fed makes second consecutive quarter point cut. The October FOMC meeting concluded today with members voting 10-2 to cut interest rates by a quarter point, setting the new target range at 3.75% – 4.00%. The two dissents fell on opposite sides of the spectrum, with Miran dissenting in favor of a 50 bp cut and Schmid in favor of holding rates unchanged. Today’s policy easing was fueled by the softening labor market, as the Fed statement acknowledged that “risks to employment rose in recent months” while highlighting persistent inflation and referring to economic growth as “moderate.” The Fed also announced they will stop shrinking their balance sheet beginning in December, having shed more than $2 trillion in Treasuries and mortgage-backed securities since 2022. The full FOMC statement with a side-by-side comparison from the last meeting can be read here.

Powell puts December rate cut in question. In today’s post-meeting conference, Fed Chair Jerome Powell cast doubt on the potential for another rate cut in December, saying that “A further reduction in the policy rate at the December meeting is not a foregone conclusion, far from it.” Powell’s cautious approach is largely driven by concerns about inflation and the potential for tariffs to fuel “more persistent” price pressures. The lack of fresh economic data (due to the government shutdown) is also creating obscurity, though Powell noted that economic impacts from the shutdown should reverse. Futures markets are now only pricing in a ~69% chance of a 25 bp cut in December, down from ~92% yesterday.