Fed Faces Tough Choices as Powell Acknowledges Policy Divisions

Disagreements Are to be Expected in a ‘Challenging Situation,’ Powell Said

8 minutes ago

With both a weakening labor market and stubborn inflation, it’s understandable that there are different views on the committee about what to do in this “challenging situation,” Powell said.

“You would expect that there would be a range across the committee of views on what to do and the speed at which to do it. And that’s what we have,” he said. “[Committee members] just want to do what’s right for the American people; they just have different views on what that is.”

Stocks Fall as Powell Casts Doubt on Another Fed Rate Cut

14 minutes ago

Major stock indexes turned lower Wednesday after Federal Reserve Chair Jerome Powell said an additional interest-rate cut in December “is not a foregone conclusion” after the central bank trimmed its key rate by a quarter point. 

The benchmark S&P 500, blue-chip Dow Jones Industrial Average, and tech-heavy Nasdaq were down, respectively, 0.5%, 0.4%, and 0.2% as Powell spoke. All three indexes had set intraday records for a fourth consecutive session soon after markets opened and were higher following the Fed’s decision to cut interest rates by 25 basis points to a target range of 3.75% to 4%.

The 10-year Treasury yield rose to 4.05% from 4.02% before Powell’s press conference. The U.S. dollar index, which tracks the value of the greenback against a basket of foreign currencies, rose to 99.10 on the Fed chair’s comments.

-Aaron Rennie

Inflation Will Likely Continue to Rise, Powell Says

18 minutes ago

Tariffs could continue to push up inflation for some time, Powell said on Wednesday.

The Fed still believes that tariffs will ultimately result in a one-time price increase on goods rather than ongoing inflation. It’s just taking a long time for tariffs to work their way through the supply chain and get to consumers, Powell said.

Price increases could stop around the springtime, Powell said. In the meantime, household budgets are still stretched, especially as tariffs compound the effects of the post-pandemic inflation, he said.

“Inflation is still very much making people quite unhappy,” he said.

Government Shutdown Makes the Fed’s Job Harder

32 minutes ago

The Fed is already in a difficult position as pressures on both the labor market and inflation are dividing its attention.

The government shutdown has made that job even harder, Chair Jerome Powell said Wednesday. There are metrics that the committee looks at, he said, but they don’t get as granular as they would like to analyze.

That could sway the committee to slow down rate cuts, he indicated.

“What do you do if you’re driving in a fog? You slow down,” he said.

‘Unusual’ Split in Votes Could Indicate a Close Call in December

36 minutes ago

While Powell said it’s unclear what the path ahead holds, economists noted that the split in today’s vote could indicate a slowdown in cuts is ahead.

While Governor Stephen Miran’s vote for larger rate cuts was widely expected, Kansas City Fed President Jeffrey Schmid’s vote for keeping the rates untouched could indicate a more hawkish sentiment growing in the committee.

“The policy statement contained few clues about future policy, but we know from last meetings’ dot plot that the committee was almost equally split on delivering no further cuts or two more cuts this year,” wrote Michael Pearce, deputy chief U.S. economist at Oxford Economics. “It is unusual for the committee to be so divided on the near-term outlook for policy.”

December Rate Cut is Not a Foregone Conclusion, Powell Said

46 minutes ago

Chair Jerome Powell said that the committee has not made a policy decision for its last meeting of the year.

The Fed is set to meet next on Dec. 9 and 10, and while markets are confident that the Fed will cut, the chair has indicated they are not so sure.

“We just don’t know what we’re going to get,” he said.

His comments dented some of the confidence of traders, but investors are still pricing in an 82% chance of a rate cut at that time, according to CME Group’s FedWatch tool.

The Fed is Working Toward a Neutral Policy Stance, Powell Says

54 minutes ago

While deterioration in the labor market and stubborn inflation, the Fed is trying to put less influence on the economy, Chair Jerome Powell said in a press conference Wednesday.

Fed officials are partly guided by the idea that there’s an interest rate at which Fed policy has a neutral effect—not overly stimulating the economy with cheap borrowing but also not holding it back by making loans too costly. Pinning down that neutral rate can be difficult because it’s all estimates.

However, on Wednesday, Powell said they are working toward trying to find that rate. He said that by exerting no pressure on the economy either way, they may be better equipped to handle the risks on both the employment and inflation side of their dual mandate.

To read more about the neutral rate, click here.

Fed Signals End of Quantative Tightening

1 hr 12 min ago

The Fed also said it was stopping its quantitative tightening program that had been removing money from the financial system. The Fed will stop reducing its securities as of Dec. 1.

Quantitative tightening involves monetary policies that contract the Federal Reserve’s balance sheet by either selling Treasurys or letting them mature. This process reduces liquidity in financial markets and is designed to control inflationary pressures and prevent an overheating economy.

Read more about quantitative tightening here.

Watch Fed Chair Jerome Powell Hold a Press Conference

1 hr 20 min ago

Fed Chair Jerome Powell will speak to reporters following today’s decision.

You can watch a livestream of the press conference below.

The Federal Reserve Cuts Its Influential Fed Funds Rate

1 hr 32 min ago

The Federal Reserve has once again cut its benchmark interest rate, aiming to revive the stagnant job market and prevent a surge in unemployment by lowering borrowing costs.

The Fed’s policy committee voted to cut the fed funds rate by a quarter point to a range of 3.75% to 4% Wednesday. Today’s cut confirmed that, at least for now, boosting employment remains the Fed’s primary goal, with the battle against inflation on the back burner.

Fed Governor Stephen Miran dissented, voting to lower rates more steeply, by half a percentage point. Kansas Fed President Jeffrey Schmid also dissented but preferred to keep the fed funds rate unchanged.

To read more about today’s decision, click here.

-Diccon Hyatt

Investors Foresee a 98% Chance of a Quarter-Point Cut

1 hr 55 min ago

Traders are pretty confident the Fed will cut interest rates today.

According to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data, investors are pricing in a 98% chance of a rate cut today just ahead of the meeting.

That confidence has helped send stock indexes to record highs. The Dow Jones Industrial Average, Nasdaq, and S&P 500 all set intraday records for a fourth consecutive session.

The confidence in rate cuts remains strong for the final meeting of the year as well. Traders are betting there’s an 85% chance of another quarter-point cut at the December meeting.

To follow along with live coverage of the stock market’s reaction to today’s Fed meeting, click here.

What Happened at the Last Fed Meeting?

2 hr 3 min ago

The Federal Reserve cut its key interest rate for the first time this year in its last meeting in September.

The central bank’s policy committee voted to lower the fed funds rate by a quarter-point to a range of 4% to 4.25%, its lowest level since December 2022.

Fed officials predicted two more quarter-point reductions are likely this year, according to a set of quarterly economic projections released alongside the interest rate decision. That was one more quarter-point cut than officials expected in June, the last time they made economic projections.

“The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen,” the committee said in a statement.

The vote of the 12-member committee was split, with 11 voting for the quarter-point cut and one, the newly appointed Stephen Miran, voting for a larger half-point reduction.

To read more about last month’s meeting, click here.

-Diccon Hyatt

Will QT Come to a Close?

2 hr 53 min ago

Some analysts expect the Fed to halt a program that’s slowly been draining excess money from the financial system. Others say the Fed could hold off until December.

It wouldn’t be a signal of the Fed’s view on the economy, Powell said this month.

 But it would spell the end of the Fed’s efforts to unwind the extraordinary support it offered to bond markets during the COVID pandemic.

Powell “cleared the path” for ending its quantitative tightening program with his speech, wrote Gennadiy Goldberg, head of U.S. rates strategy at TD Securities.

Bond markets nearly crumbled in March 2020, forcing the Fed to buy up a large amount of Treasury securities and mortgage-backed securities to help prevent a full-blown meltdown. The bond-buying program paved the way for ultra-low interest rates during the pandemic, fueling a spree of home purchases and refinancing. 

It meant, however, that the Fed’s balance sheet ballooned from just about $4 trillion in early 2020 to nearly $9 trillion by 2022.

The Fed has since been gradually unwinding that support by letting some of the bonds it has purchased mature without replacing them, essentially removing money from the system. The Fed’s assets are now below $6.6 trillion, though Powell suggested recently the economy’s growth means assets won’t return to pre-pandemic levels.

The trigger for ending QT is recent market movements in very short-term lending. The plumbing in the financial system is far from clogged, but it’s flowing a little less freely than it used to since the Fed has removed cash from the system. Some signs are starting to suggest “liquidity conditions are gradually tightening,” Powell said last month.

The Fed aims to ensure banks have “ample reserves,” thus preventing spikes in short-term interest rates that would emerge if banks need cash imminently. That is more or less what happened for a brief period in September 2019, when the Fed’s efforts to unwind its post-2008 bond purchases came to an abrupt end. 

To avoid similar strains, the Fed plans to stop its QT program when bank reserves are “somewhat above” the levels it deems “ample,” Powell said.

Analysts say that period is nearing.

“Bank reserves are closer to ample than abundant,” Bank of America’s Bhave wrote, and ending QT “would be a prudent move” even if that may not happen until December.

-Polo Rocha

Will There Be Dissents?

3 hr 14 min ago

Because of the pull on both sides of the Fed’s dual mandate, not all members of the committee seem to agree on the path ahead.

It’s very likely that one Fed official will want to cut rates more aggressively: Fed Governor Stephen Miran. He was previously a top White House economist and has aligned with President Donald Trump’s position that aggressive cuts are necessary.

Miran, in his first meeting, voted against September’s 25 basis point rate cut, arguing it should have been double that amount. He’s signaled he will do so again.

“My view is that it should be 50,” Miran told Fox Business this month.

At least one other Fed official may vote against the decision—but arguing that the Fed should keep rates flat instead.

There are “meaningful risks of at least one hawkish dissent,” wrote Bhave, of Bank of America.

One such dissenter could be Kansas City Fed President Jeffrey Schmid, who recently noted inflation “remains too high.” Chicago Fed President Austan Goolsbee is another candidate, Bhave wrote, noting he’s recently put himself in the “cautious” camp.

“Let’s be a little wary about frontloading all the rate cuts before we know that inflation’s going to go back down to 2%,” Goolsbee told the Financial Times.

St. Louis Fed President Alberto Musalem, meanwhile, has said he’s “open-minded.”

Fed Governor Michael Barr has also called for a “cautious approach,” though Bank of America says he may ultimately vote with the majority since Fed governors don’t tend to dissent from rate decisions.

-Polo Rocha

The Fed is Flying Blind

3 hr 53 min ago

The government has been shut down since Oct. 1, and that has delayed all kinds of federal economic data. That has created problems for a Fed committee that has tried to be “data dependent” this year.

The problem is that the data, including for inflation and job creation, is based on massive surveys. With the Bureau of Labor Statistics closed, those surveys aren’t being carried out. (With the important exception of the Consumer Price Index report for September, which was published Oct. 24.)

That means there’s very little data for the Fed to base its decision on this month and may continue to create issues for the rest of the year.

“If the shutdown continues, it’s possible that, for the first time in at least six decades, there will be a full month gap in data about jobs and unemployment in the U.S. economy,” Elise Gould, senior economist at the progressive Economic Policy Institute think tank, and Joe Fast, a research assistant, wrote in a commentary.

To read more about this data conundrum, click here.

Why Is the Fed Expected to Cut Rates?

4 hr 51 min ago

Congress has tasked the Fed with a dual mandate to keep inflation low and employment high using the fed funds rate, which is the interest rate banks charge to borrow money from one another. The fed funds rate affects borrowing costs on short-term loans like credit cards and car loans, and indirectly influences longer-term loans like 30-year mortgages.

When inflation is high, the Fed raises the rate to discourage borrowing and cool down the economy, allowing supply and demand to rebalance. When the job market weakens, the Fed cuts interest rates to encourage business and stimulate hiring.

Currently, the economy is facing a rare situation where inflation and the job market are worsening simultaneously, posing a dilemma for the Fed as to which problem to address first.

While inflation remains above the Fed’s goal of a 2% annual rate, officials have become more concerned about the health of the job market, as job creation has slowed nearly to a halt in recent months.

Officials have been split on what approach to take. Some have advocated for further rate cuts in the coming months, while others view inflation as a greater threat and would like to keep rates higher for longer.

Expectations for an October rate cut were cemented Friday when a report showed the Consumer Price Index rose less than expected in September. 

What Happens At a Fed Meeting?

5 hr 14 min ago

The Federal Reserve Open Markets Committee will make monetary policy decisions today and is widely expected to cut its influential fed funds rate by a quarter of a point.

The Federal Open Market Committee, also known as the FOMC, is the body that sets the fed funds rate for the Federal Reserve System, the United States’ central bank. It holds eight regularly scheduled meetings each year, which are not open to the public. The Fed’s use of interest rates to influence the economy is called monetary policy.

The FOMC consists of 12 voting members: the seven board governors, the Federal Reserve Bank of New York president, and four other regional bank presidents who serve rotating one-year terms.

At each FOMC meeting, the committee members discuss economic and financial conditions and decide whether and how much to change the fed funds rate. The FOMC issues a public statement about its decision at 2 p.m. on Wednesday when the meeting concludes. The Fed chair, currently Jerome Powell, typically hosts a press conference afterward to explain the decision.

To read more about what goes on behind closed doors at the FOMC meetings, click here.