October Fed minutes shows FOMC veering to lower rates

9 Oct 2025 , 11:05 AM

FOMC DIVIDED OVER NUMBER OF RATE CUTS IN 2025

In the Fed meeting conducted on September 16-17, 2025; the Fed had decided to cut rates by 25 bps to the level of 4.00%-4.25%. The only dissent note had come from Stephen Miran, who had asked for a 50-bps rate cut instead of a 25-bps rate cut. Of course, the majority prevailed and the Fed decided to settle at 25-bps. What the minutes reveal is that there were widespread concerns in the FOMC members about a possible slowdown in job creation and even a likely slowdown in GDP growth. The issue was about number of cuts.

The FOMC members were broadly divided between whether to go for 1 rate cut or 2 rate cuts between now and the end of December. However, there is one additional complication that has come about. The US government is on a shutdown since October 01, 2025. During the shutdown, the non-essential services are put on hold, which includes data dissemination. Hence, the FOMC may have to take decisions in the upcoming October 28-29 FOMC meeting based on data that is incomplete. That could impact decisions, although the debate remains whether the number of rate-cuts this year should be one or two.

WHAT WE READ FROM MINUTES OF FOMC SEP-25 FED MEET?

Here are key inferences that we drew from the Fed minutes published on October 08, 2025; 3 weeks after the FOMC meeting on September 16-17, 2025.

• The vote appears to slightly tilt towards two rate cuts this year with 10 members calling for 2 more rate cuts this year and 9 members calling for just 1 more rate cut. However, the undertone remains dovish with differences only on the quantum of cuts.
• The broad consensus among Fed members was that the labour conditions were the most vulnerable due to the tariffs and also due to the shutdown. Hence, lower rates at this juncture would allow the economy to better handle any labour shock.
• While inflation was a major topic for debate, the consensus was that the impact of higher inflation would be temporary and would revert back to 2%. Hence, the FOMC can afford to put more focus at this juncture on full employment than on price stability.
• The big risk for Fed policy is that the Labor and Commerce departments have been shuttered and data flows are not keeping. If the impasse continues till October 28-29 Fed meet, then members have to take decision on largely incomplete data.
• The US government shutdown has entered its eighth day with no sign of a resolution. This becomes an added risk for the labour markets, apart from the tariff related issues. With jobs likely to be lost, the focus for now will remain on the employment side.

Let us turn to what CME Fedwatch says about rates trajectory.

CME FEDWATCH HINTS 1 OR 2 MORE RATE CUTS IN 2025

The CME Fedwatch is based on implied probabilities of Fed Futures trading.

Fed Meet	200-225	225-250	250-275	275-300	300-325	325-350	350-375	375-400	400-425	425-450
Oct-25	Nil	Nil	Nil	Nil	Nil	Nil	Nil	92.5%	7.5%	Nil
Dec-25	Nil	Nil	Nil	Nil	Nil	Nil	78.6%	20.2%	1.1%	Nil
Jun-26	Nil	Nil	1.7%	12.5%	31.2%	34.8%	16.8%	2.8%	0.1%	Nil
Dec-26	1.0%	4.6%	13.8%	25.3%	28.6%	19.0%	6.6%	1.0%	Nil	Nil

Data source: CME Fedwatch

We have CME Fedwatch expectations till December 2026; although the 2025 probabilities are more reliable due to proximity.

• CME Fedwatch suggests that, post the minutes, the probability of a one rate cut in October and One rate cut in December is very high (nearly 80%).
• Markets are factoring in additional 2-3 rate cuts of 25 bps each in 2026; however, these probabilities could change drastically once the shutdown ends.

For now, the focus of the FOMC has shifted from inflation management to controlling the side effects on the labour market. The FOMC apprehends that the situation could be a lot worse if the shutdown continues for longer. The bigger challenge for the FOMC will be that if the shutdown continues, they have to take key decisions based on incomplete inputs.