The Federal Reserve on Wednesday approved its second consecutive interest rate cut, lowering its benchmark overnight borrowing rate to a range of 3.75% to 4%. The decision, passed by a 10-2 vote, reflects the central bank’s ongoing efforts to support economic stability amid persistent inflation and labor market concerns. Alongside the rate cut, the Fed announced it will end its quantitative tightening (QT) program—its process of reducing asset holdings—effective December 1st. This marks a significant shift in monetary policy, as QT has been a key tool in unwinding pandemic-era stimulus.
The vote revealed notable divisions within the Federal Open Market Committee. Governor Stephen Miran, an appointee of President Donald Trump, dissented in favor of a more aggressive half-point cut. Meanwhile, Kansas City Fed President Jeffrey Schmid opposed any cut at all, citing caution. These opposing views underscore the growing tension among policymakers about the appropriate pace of easing, especially as economic signals remain mixed.
Chair Jerome Powell added to market uncertainty during his post-meeting press conference, stating that a December rate cut is far from guaranteed. “There were strongly differing views about how to proceed,” Powell said, noting a “growing chorus” among Fed officials advocating to wait at least one cycle before further easing. His comments prompted traders to lower the odds of a December cut from 90% to 67%, according to CME Group’s FedWatch tool. Stocks, which had initially rallied on the rate cut news, reversed course following Powell’s remarks before recovering slightly later in the session.
Complicating the Fed’s decision-making is a government data blackout that has suspended key economic reports such as nonfarm payrolls and retail sales. The only recent release—the Consumer Price Index (CPI)—showed 3% annual inflation, driven by rising energy costs and items linked to Trump-era tariffs. Despite limited data, the Fed’s post-meeting statement noted that economic activity has been expanding at a moderate pace, job gains have slowed, and the unemployment rate has edged up but remains low. Inflation, meanwhile, continues to run above the Fed’s 2% target.
The statement also highlighted increased downside risks to employment, reflecting growing concern among policymakers about the labor market. Even before the data shutdown, signs had emerged that while layoffs remained contained, hiring had plateaued. This shift in tone from the September meeting—where economic activity was described as “moderating”—suggests the Fed is becoming more cautious about the outlook.
QT End – Major policy Shift for Fed
The end of QT marks another major policy pivot. Since its launch, the program has reduced the Fed’s balance sheet by $2.3 trillion, bringing it down from a pandemic-era peak of nearly $9 trillion. Going forward, the Fed will reinvest proceeds from maturing mortgage-backed securities into short-term Treasury bills. This move aims to ease pressure in short-term lending markets, where signs of tightening have emerged. Analysts, including Krishna Guha of Evercore ISI, suggest the Fed could restart asset purchases in 2026 to support organic market growth if conditions warrant.
While the Fed rarely eases policy during economic expansions, history shows that markets often rally when cuts occur under such circumstances. However, looser monetary policy also risks reigniting inflation—a scenario the Fed is keen to avoid after its recent cycle of aggressive rate hikes. With one meeting left in December, all eyes will be on whether the Fed continues its cautious path or resumes its easing campaign.
Also Read: Wall Street Slips for Third Straight Session as Economic Data Clouds Rate Cut Outlook
