Powell’s Comments Dampen Rate-Cut Optimism

31 Oct 2025 , 10:56 AM

At its October 29, 2025, meeting, the Federal Open Market Committee (FOMC) lowered the target range for the federal‑funds rate by ¼ percentage point to 3.75 %–4.00 %. With a 10–2 vote, the decision was overwhelmingly in favour of a rate cut. The actions were driven by emerging pressures in money‑market rates, a modest cooling in the labour market, persistent but easing inflation, and a desire to keep policy flexible while the balance‑sheet size stabilises. To support the dual mandate of maintaining maximum employment and inflation at 2%, the FOMC has taken measures to cut the fed funds rate.

While the FOMC outcome was as expected, Asian markets reacted negatively after Fed Chair Jerome Powell said that a December rate cut was not guaranteed and that policymakers would carefully assess the data after successive rate cuts. In summary, the rate cut was interpreted as a ‘hawkish cut,’ leading to profit-booking in equity markets.

 

Table: Key directives

Item	Directive
Federal Funds Rate Target range	Maintain 3.75% – 4.00% via open‑market operations.
Repo	Minimum bid 4.00 %; aggregate limit $500 bn.
Reverse‑repo	Offering rate 3.75%; per‑counterparty limit $160 bn/day.
Treasury roll‑over	Redeem coupon securities up to $5 bn/month cap; post Dec 1: no cap – all principal payments rolled over.
Agency debt/MBS reinvestment	Reinvest excess principal (> $35 bn/month) into Treasury securities to match maturity profile. post Dec 1: no cap – all principal reinvested in Treasury bills.
Primary‑credit rate	Cut to 4.00 %

Source: FOMC Press Release

Figure: History of Fed Funds Target and Effective Rate

Source: FRED

Key Quotes From The Press Conference

On Inflation

1. Inflation has eased significantly from its highs in mid-2022 but remains somewhat elevated relative to our 2 % longer-run goal.
2. These readings are higher than earlier in the year as inflation for goods has picked up, while disinflation appears to be continuing for services.
3. Higher tariffs are pushing up prices in some categories of goods, resulting in higher overall inflation. A one-time shift in the price level is the reasonable base case, but a more persistent effect cannot be ruled out.
4. In the near term, risks to inflation are tilted to the upside and risks to employment to the downside—a challenging situation.

On Growth, Consumer Spending & Business Investing

• Available indicators suggest that economic activity has been expanding at a moderate pace. GDP rose at an annualised rate of 1.6 % in the first half of the year, down from 2.4 % last year.
• Growth in economic activity may be on a somewhat firmer trajectory than expected, primarily reflecting stronger consumer spending.
• Business investment in equipment and intangibles has continued to expand.
• The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends.
• With downside risks to employment having increased in recent months, the balance of risks has shifted, and we judged it appropriate to take another step toward a more neutral policy stance.