BAF NEWS

Background: October FOMC Rate Cut

The Fed cut its policy rate by 25 basis points in October, 10–2. The new range is 3.75%–4.00%, according to meeting minutes. Officials also warned that further reductions could risk higher inflation becoming entrenched. As one passage put it, “further policy rate reductions could add to the risk of higher inflation becoming entrenched.”

By the numbers:

• Vote: 10–2
• Move: 25 bps
• Range: 3.75%–4.00%
• Inflation: about 3% in September, still above target

Zoom in:

The October 28–29 minutes stressed balancing progress on inflation with labor-market risks. Therefore, the Committee kept an explicitly cautious tone on the path forward.

Impact of Government Shutdown on Data

A government shutdown disrupted the timely flow of official economic data. That gap increased uncertainty heading into the next meeting. Minutes noted that participants agreed the Committee should be “deliberate” amid the reduced availability of key data.

However, some delayed releases are now trickling back. Even so, officials say the picture remains incomplete before the December 9–10 gathering. Consequently, the bar for near-term moves is higher, especially without full visibility on jobs and prices.

The upshot: With patchy data, the Fed will likely avoid pre-committing. Policymakers want decisions anchored in evidence, not assumptions.

Divisions Among Policymakers

The minutes and recent remarks reveal deep divisions. Some officials worry that cutting too quickly could rekindle inflation. Others argue that policy remains restrictive and should continue easing. Chair Powell underscored the split, saying a December cut is “not a foregone conclusion, far from it.”

Moreover, governors and regional presidents are not aligned on timing. Several Reserve Bank presidents urge caution. Meanwhile, a few Board members favor another step lower. This mix complicates guidance and keeps options open.

Zoom in:

The disagreement is largely about weights, not goals. All aim at price stability and employment, yet differ on how fast to move while data are limited.

Market Reaction to October Decision

Markets initially cheered the October cut. But expectations shifted after the minutes. Following the release, traders marked down the odds of a December move. Pricing signaled a notable drop in confidence that another cut would land this year.

Additionally, front-end yields adjusted to the new communication. Risk assets showed a more muted response as the probability path flattened. Therefore, markets are now braced for a data-dependent December rather than a preset glide path.

What’s next:

Incoming labor and inflation prints will steer pricing. But missing pieces could keep implied odds choppy until the final stretch.

Key Voices: Jefferson vs. Waller

Vice Chair Philip Jefferson has urged going “slowly” on additional cuts. He framed the trade-offs clearly and stopped short of endorsing a December move. His stance favors patience while the Fed’s data dashboard refills.

By contrast, Governor Christopher Waller laid out “The Case for Continuing Rate Cuts.” He argued the economy can justify more easing. As he put it, “economies are confoundingly difficult to understand” given their complexity. Even so, his case leans toward continued reductions under current conditions.

Therefore, leadership signals are mixed by design. The committee is keeping both doors open while emphasizing risk management.

Implications for December Meeting

Limited data and sharp internal debate make a December cut uncertain. Powell said it is not assured, reflecting the evolving balance of risks. Minutes also highlight that more cuts could entrench inflation if delivered too quickly.

Still, the Fed wants to avoid overtightening as growth cools. Consequently, officials are defining a slower cadence rather than a pause promise. Markets will key off any surprise in late-arriving jobs and inflation data.

The upshot: December remains a live meeting, but not a done deal. Absent clearer disinflation and stronger data visibility, the Fed may prefer waiting for January.