Fed Eases Policy from 3.75% to 4.00% as LaboUr Market Concerns Rise
New York: 30-10-2025: The U.S. Federal Reserve, following its October policy meeting, announced a widely anticipated interest rate cut, lowering its benchmark federal funds rate by 25 basis points (0.25 percentage point) This marks the second consecutive rate cut this year, bringing the target range to 3.75% to 4.00%.
The decision by the Federal Open Market Committee (FOMC) was made primarily out of concern for the cooling US Job market, which has shown signs of softening despite persistently elevated inflation. The move is intended to support employment and cushion the economy against downside risks.
While the reduction was broadly expected by financial markets, the policy decision was unique due to the surrounding circumstances, an ongoing US federal government shutdown that has severely limited available economic data. This lack of comprehensive information, which typically guides the Federal Government’s dual mandate of maximum employment and price stability, added a layer of profound uncertainty to the proceedings.
The Great Divide: Two Policymakers Dissent
The decision was not unanimous, ending in a 10 vs 2 vote. This split was particularly noteworthy as the dissent came from two opposing viewpoints, a rare occurrence not seen since 1990.
Stephen Miran, a Federal Governor, dissented in favour of a larger cut, he recommends it to be as 0.50 basis points. Miran has consistently advocated for a more aggressive easing of monetary policy to counter threats to the job market.
Jeffrey Schmid, President of the Kansas City Fed, dissented in favour of no change to the interest rate. Schmid’s preference stemmed from his concern that inflation remains too high above the Federal Government’s 2% target, suggesting the policy was not restrictive enough to curb rising prices.
This conflicting dissent highlights the extraordinary difficulty the US central bank is facing. It must balance a softening job market, which argues for lower rates, against sticky inflation, which argues for steady or higher rates. The government shutdown only amplified this division, as policymakers were forced to rely on limited and often private-sector data, obscuring the true state of the economy.
Navigating the Fog: Limits of Data During Shutdown
A major theme from the Federal Government’s statement and Chair Jerome Powell’s press conference was the challenge posed by the lacking of authentic data reports. The ongoing government shutdown has previously suspended the release of few important official reports, including the monthly jobs report and updates on consumer spending, which may better support this price cut.
Chair Powell acknowledged that the central bank is forced to collect every scrap of data it can, relying on private-sector reports and older government figures. This lack of up-to-date, comprehensive, and verified economic data significantly complicated the decision-making process of price cut. The Fed’s statement included a direct nod to the limits of data during the shutdown, signalling that its confidence in the economic outlook is necessarily lower.
This uncertainty led Powell to caution investors about expectations for the final meeting of the year. He stated that a further rate cut in December is not a foregone conclusion, adding that policy is not on a preset course. This hawkish tone pushed back against the market’s high probability for an immediate follow-up cut, underscoring the Fed’s reliable data-dependent approach and its current operating constraint: limited data availability.
Impact and Future Policy Path:
In addition to the rate cut, the Fed made another significant announcement, that it will cease its program of quantitative tightening (QT), the reduction of its asset holdings-on December 1st. This action move aims to ease strains in short-term money markets and ensure adequate liquidity in the banking system.
For consumers and businesses, the lower rates will, over the period of time, translate into slightly reduced borrowing cost for mortgages, credit cards, and business loans. However, the future path of US monetary policy remains highly debated within the FOMC.
The twin concerns of a slowing labour market and persistent inflation, exacerbated by trade tensions and the earlier government shutdown, mean that the Fed is navigating a complex and uncertain period. All eyes now turn to the resolution of the shutdown and the release of new data, which will dictate whether the Fed pauses its easing cycle or proceeds with another reduction in December, The delicate balance between its dual mandate ensures that volatility in short-term interest rate expectations is likely to continue.
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