The Federal Reserve voted Wednesday to cut interest rates for the second consecutive meeting, lowering its benchmark rate by a quarter percentage point to a range of 3.75% to 4%.
This move brings borrowing costs below 4% for the first time since 2022 and signals the central bank’s ongoing effort to support a slowing labor market – even as inflation remains above its 2% target.
A Split Decision
The rate cut wasn’t unanimous. Two Fed officials dissented:
- Stephen Miran pushed for a larger half-point reduction.
- Jeffrey Schmid preferred no cut at all.
Their split highlights the internal tension over whether more stimulus is needed, especially with limited economic data available due to the ongoing government shutdown. Key reports on jobs, retail sales, and inflation have been delayed, leaving the Fed to make decisions with only partial visibility into the economy.
Related Reading: Interest Rates Demystified: From Federal Funds to Your Finances
Powell Urges Caution
Fed Chair Jerome Powell emphasized that a December rate cut is “far from a foregone conclusion.” He noted “strongly differing views” among policymakers and stressed that while the economy continues to expand at a moderate pace, risks to employment have risen.
Markets, which initially rallied on the news, reversed course following Powell’s comments. Traders are now assigning roughly a two-thirds chance of another cut in December – down from 90% a day earlier.
End of Quantitative Tightening
The Fed also announced plans to end its balance sheet reduction program (quantitative tightening) on December 1st. The move comes as signs of strain appear in short-term lending markets. Since 2022, the Fed has trimmed its balance sheet from nearly $9 trillion to $6.6 trillion by allowing bonds to roll off rather than reinvesting.
Looking Ahead
The Fed faces a delicate balancing act: supporting employment without reigniting inflation. With the data blackout limiting clarity, officials are treading carefully.
The next FOMC meeting in December will determine whether today’s rate cut marks a pause – or another step in a broader easing cycle.
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