In a widely anticipated move, the U.S. Federal Reserve lowered interest rates by 25 basis points to a range of 3.75% – 4% on Wednesday, in an initial attempt to support the economy amid the ongoing federal government shutdown that has caused a shortage of new economic data.
But despite the expected decision, uncertainty still looms over the path of future monetary policy, as policymakers at the central bank showed a clear divide in their opinions. Member Stephen Miran – appointed by former President Donald Trump – called for a bolder cut of 50 basis points, while Jeffrey Schmid, President of the Federal Reserve Bank of Kansas City, surprisingly voted to keep interest rates unchanged.
During the press conference that followed the decision, Federal Reserve Chair Jerome Powell emphasized that an additional cut in December is not guaranteed, stating that 'the upcoming economic data will be the determining factor in any future move.'
This statement led traders to adjust their bets regarding a new cut in December, with expectations dropping from 90% to around 71%.
In another notable step, Powell announced the end of the quantitative tightening program that aimed to reduce the bank's holdings of Treasury securities and mortgage-backed securities, following signs of strain in the short-term lending markets.
Wall Street analysts see these developments as reflecting an increasing caution within the Federal Reserve, as the central bank seeks to balance the risks of economic slowdown with inflation concerns. Some believe that the baseline scenario in the next phase will be a temporary pause to review the effects of the current cut, while keeping the door open for any additional move if new economic data shows weakness.
In the end, all eyes remain on the December meeting, which may determine whether this is the beginning of a long easing cycle or merely a tactical pause in the course of U.S. monetary policy.
