December not definite

Last week, the Federal Reserve decided to reduce its target interest rate by 25 basis points to a range of 3.75-4%. Though it was an expected move, two dissents — one in favor of a 50 basis-point cut and another opposing any — highlight diverging views within the committee.

Fed Chair Powell was quick to push back against the market’s expectation of another cut in December, reiterating that Fed policy does not follow a preset course. He cited the lack of government data and the potential for an extended shutdown as reasons for caution, comparing this to how, if you drive in the fog, you slow down. Following the press conference, markets continued to price in a December cut, but with much less confidence than they had.

Despite its limited data set, Powell said the economy is near where it was in September. At that time, he described the move as “risk management” to protect against a weakening labor market. Though the Fed followed up with a second cut last week, Powell’s new comments suggest the committee is not entirely convinced that more of these insurance cuts will be immediately necessary. Specifically, he noted that the job market is cooling gradually, but “nothing more than that,” and that inflation, excluding tariffs, is not far from its 2% target.