Gold and stocks slid on hawkish Fed talks and growing REPO tantrum

 

·         Most of the FOMC participants are arguing for a hold in December, as the rate is now near neutral to manage both higher inflation and unemployment

·         The market is concerned about growing money market turmoil amid the US government shutdown, resulting in credits to the government, but no debits

·         At around 223 TTM EPS for SPX-500 and 7000 levels, the TTM PE was above 31; i.e., an extreme bubble zone

As highly expected, the Federal Reserve delivered its second rate cut of the year on October 29, lowering the federal funds rate by 25 basis points to a target range of 3.75%–4.00%. But the decision—approved in a 10-2 vote—revealed deep divisions within the Federal Open Market Committee (FOMC), with one member pushing for a larger reduction and another preferring no change at all.

In the days following the meeting, Fed Chair Jerome Powell and a handful of officials offered cautious, often conflicting signals about the central bank’s next move, particularly ahead of the critical December meeting. With a federal government shutdown clouding economic data and tariff risks looming, the Fed appears to be navigating a narrow and uncertain path.

A Cautious Cut amid Rising Risks

The FOMC’s post-meeting statement acknowledged a resilient but slowing economy. Job gains have moderated, the unemployment rate is edging higher (projected to reach 4.5% by year-end), and downside risks to employment have “risen.” Inflation, meanwhile, remains “somewhat elevated” above the 2% target, though core measures excluding tariffs sit near 2.3%–2.4%. The FOMC also announced the end of quantitative tightening (QT) effective December 1, 2025. Starting then, the Fed will reinvest maturing securities into short-term Treasuries to preserve ample reserves amid recent money market volatility.

But the most telling sign of internal discord came in the vote itself:

·         Governor Stephen Miran dissented in favor of a 50 bps cut, arguing that monetary policy remains too restrictive given labor market weakness (as expected).

·         Kansas City Fed President Jeffrey Schmid voted against any reduction, citing persistent inflation risks from tariffs and fiscal policy (unexpected).

Powell’s Hawkish Pause Signal

In his post-meeting press conference, Chair Jerome Powell struck a measured but notably cautious tone, emphasizing “risk management” over aggressive easing:

·         A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it

·         Strongly differing views among the 19 FOMC participants, with a growing chorus advocating for a pause to assess data once the government shutdown ends.

·         Powell described the labor market as “still cooling because policy is restrictive,” noting rising defaults among low-income households and a bifurcated economy.

·         Inflation, he said, is close to target on a core basis excluding tariffs, but overall pressures remain elevated.

·         On the balance sheet, Powell confirmed reserves are “only slightly above ample” at roughly $2.93 trillion, justifying the early end to QT. No immediate expansion is planned, though modest growth may resume later to match economic needs.

Markets reacted swiftly—December rate-cut odds plunged from nearly 90% to around 50%–60% in the hours following his remarks.

Dissent Statement by Jeff Schmid: President KC Fed-Voted for no rate cuts on October 29

“The following statement is from Jeff Schmid, president and CEO of the Federal Reserve Bank of Kansas City, regarding his vote at the Federal Open Market Committee’s October 28-29, 2025, meeting.

At this week's FOMC meeting, I dissented against lowering the target range for the federal funds rate by 25 basis points. My preference would have been to leave the target range unchanged.

By my assessment, the labor market is largely in balance, the economy shows continued momentum, and inflation remains too high. I view the stance of policy as only modestly restrictive. In this context, I judged it appropriate to maintain the policy rate at this week’s meeting.

Talking to contacts in the Kansas City Fed’s district, I hear widespread concern over continued cost increases and inflation. Rising healthcare costs and insurance premiums are top of mind. In the data, inflation is spreading across categories, both goods and services. Inflation has been running above the Fed’s 2 percent objective for more than four years. As I have said before, I take small comfort in most measures of inflation expectations having not moved up. I view inflation expectations not as an input into the Fed's decisions, but as the outcome of the policy decisions that the Fed makes.

As it is, I see the stance of policy as being only modestly restrictive. Financial market conditions appear to be easy across many metrics. Equity markets are near record highs, corporate bond spreads are very narrow, and high-yield bond issuance is high. None of this suggests that financial conditions are particularly tight or that the stance of policy is restrictive. Likewise, the economy is showing continued momentum. Consumption remains solid, and data for July and August suggest acceleration through the summer.

Fixed capital investment, an interest-sensitive component of growth, has shown some of the strongest increases. The contribution of software spending to GDP growth was the largest on record in the second quarter. And the contribution of investment in information technology to GDP growth in the first quarter was the highest on record, with the exception of the first quarter of 2000.

With inflation still too high, monetary policy should lean against demand growth to allow the space for supply to expand and relieve price pressures in the economy. With the dual mandate, Congress has directed the Federal Reserve to manage the trade-offs that arise from the economy-wide constraint that ties inflation to unemployment. Constraints lead to difficult decisions over how to balance competing objectives.

In certain circumstances, the Fed's actions might have disproportionate effects on the two sides of the mandate. Now, for example, I do not think a 25-basis point reduction in the policy rate will do much to address stresses in the labor market that more likely than not arise from structural changes in technology and demographics. However, a cut could have longer-lasting effects on inflation if the Fed's commitment to its 2 percent inflation objective comes into question. In the end, inflation is the Federal Reserve's responsibility and within its control, and as I balance the mandate—and the effectiveness of the Fed's actions in meeting that mandate—my preference was to hold the policy rate steady at this week's meeting.”

Fed Governor Waller Advocates for December Rate Cut Amid Labor Market Concerns

In the wake of the Federal Reserve's October 29 decision to lower interest rates by 25 basis points, Governor Christopher Waller emerged as a vocal proponent for continued easing. Speaking publicly on October 30, Waller emphasized the need to support a softening labor market while inflation remains manageable, signaling his support for another rate reduction at the upcoming December meeting.

Waller's remarks, delivered amid a federal government shutdown that has hampered fresh economic data, underscore the internal divisions within the Fed. While Chair Jerome Powell adopted a more cautious tone the previous day—stating that a December cut is "not a foregone conclusion"—Waller's dovish stance highlights the committee's ongoing debate over the pace of monetary policy adjustments.

Key Highlights from Waller's October 30 Comments

Waller's intervention came as one of the first post-meeting public statements from a Fed governor, providing early clues to the central bank's direction. Drawing on recent indicators like moderating job growth and persistent but controlled inflationary pressures, he made a clear case for proactive easing: "If hiring sputters and inflation remains in check, the FOMC should proceed to reduce the policy rate toward a neutral level."

 

This quote encapsulates Waller's view that the current policy stance—now at 3.75%–4.00% following the October cut—remains somewhat restrictive and risks further weakening employment if left unaddressed. He pointed to softening labor data, including rising unemployment projections to 4.5% by year-end, as a primary driver for action.

On inflation, Waller acknowledged that core measures (excluding tariff effects) are hovering near 2.3%–2.4%, close to the Fed's 2% target. He dismissed concerns over potential inflationary spikes from President Trump's tariffs, describing them as a "transient shock" unlikely to derail progress. This contrasts with hawkish voices, such as Kansas City Fed President Jeffrey Schmid, who dissented against the October cut, citing tariff-related risks.

Waller also addressed broader economic resilience, noting that while growth is moderate, downside risks to jobs have intensified. He advocated for a measured approach to future cuts, aligning with the Fed's data-dependent framework but urging readiness to act if November's employment and inflation reports—expected post-shutdown—show further softening.

Key Highlights from Waller's October 30 Comments

Waller's intervention came as one of the first post-meeting public statements from a Fed governor, providing early clues to the central bank's direction. Drawing on recent indicators like moderating job growth and persistent but controlled inflationary pressures, he made a clear case for proactive easing: “If hiring sputters and inflation remains in check, the FOMC should proceed to reduce the policy rate toward a neutral level”.

This quote encapsulates Waller's view that the current policy stance—now at 3.75%–4.00% following the October cut—remains somewhat restrictive and risks further weakening employment if left unaddressed. He pointed to softening labor data, including rising unemployment projections to 4.5% by year-end, as a primary driver for action.

On inflation, Waller acknowledged that core measures (excluding tariff effects) are hovering near 2.3%–2.4%, close to the Fed's 2% target. He dismissed concerns over potential inflationary spikes from President Trump's tariffs, describing them as a "transient shock" unlikely to derail progress. This contrasts with hawkish voices, such as Kansas City Fed President Jeffrey Schmid, who dissented against the October cut, citing tariff-related risks.

Waller also addressed broader economic resilience, noting that while growth is moderate, downside risks to jobs have intensified. He advocated for a measured approach to future cuts, aligning with the Fed's data-dependent framework but urging readiness to act if November's employment and inflation reports—expected post-shutdown—show further softening.

On late Friday, October 31, Fed's Waller said:

·         The labor market is weak, and tariffs are having a minor effect on inflation.

·         All of our forecasts have inflation returning to target

·         If the President asks me to be the Fed Chair, I'll say yes

·         Excluding temporary inflation effects, PCE inflation is running at 2.5%

·         Inflation is coming back to 2%. The biggest concern now is the labor market

·         I still advocate for cut rates in December. The data fog does not tell you to stop

·         We have a lot of data, despite the government shutdown

·         The labor market is weak, and tariffs are having a minor effect on inflation

·         All of our forecasts have inflation returning to target

·         Inflation expectations are anchored

·         We should proceed with a policy based on what the data is telling us

·         We know the labor market has been weak.

·         US Bank deposits fell to $18.504 tln from $18.508 tln in the prior week.

·         We should look through tariff-driven inflation.

·         We should look through tariff-driven inflation.

Fed’s Waller is a known dove and Trump loyalist, but he himself admitted many times that he is in the minority camp.

Stephen Miran (Fed Governor) – Known Dove (Trump loyalist)

The lone dissenter for a larger cut, Miran has reiterated his call for aggressive action—potentially 100–125 bps more in cuts through 2025. On leave from the Trump White House, his views align with prioritizing employment over inflation concerns.

Federal Reserve Governor Stephen Miran, fresh off his dissenting vote for a more aggressive rate cut at last week's FOMC meeting, doubled down on his assessment that monetary policy is still overly tight. In comments that underscore ongoing divisions within the central bank, Miran argued that the current stance risks unnecessarily hampering economic growth, particularly amid a softening labor market, and called for larger interest-rate reductions to reach a neutral level.

Miran's remarks, reported by Bloomberg, come as the Fed grapples with high uncertainty from a federal government shutdown and looming tariff risks under the incoming Trump administration. His push for outsize cuts contrasts sharply with Chair Jerome Powell's cautious post-meeting tone and highlights the committee's split, which saw a 10-2 vote to lower the federal funds rate by just 25 basis points to 3.75%–4.00% on October 29.

Miran's Case for Aggressive Easing

Miran, who advocated for a 50 basis point reduction at the October meeting—the lone dissenter in favor of bolder rate cut action—reiterated his rationale in the Bloomberg interview. He emphasized that the Fed's policy remains restrictive relative to a neutral rate, which he views as significantly lower than the current target range: “The Fed is too restrictive, neutral is quite a ways below where current policy is--- Given my rather more sanguine outlook on inflation than some of the other members of the committee, I don’t see a reason for keeping policy as restrictive.”

Miran did not address tariffs or labor market specifics in these latest comments, but his broader advocacy aligns with prioritizing employment risks over inflation fears. Pre-meeting, he had signaled support for 100–125 basis points in additional cuts through 2025, a view that positions him firmly in the dovish camp.

Highlights of comments by Fed’s Miran: October 3, 2025

·         I think the Fed is too restrictive

·         The longer we stay restrictive, the greater the risk of a downturn

·         It is a mistake to make conclusions about monetary policy from financial conditions alone

·         Private credit suggests that tight conditions may be masked

·         Changes in the neutral rate mean policy has passively tightened despite Fed cuts

·         The Fed could get to neutral in a series of 50 bps cuts, but does not need 75 bps cuts; the economy is not dysfunctional

·         Being too data-dependent makes policy too backward-looking; you want to make policy on the forecast

·         I find alternative inflation data to be not super useful

Fed’s Goolsbee on the Fence about December Rate Cut amid Data Uncertainty

Chicago Federal Reserve Bank President Austin Goolsbee struck a cautious, non-committal tone on the potential for another interest rate reduction in December, highlighting persistent inflation pressures and a lack of clear economic data due to the ongoing government shutdown. In an interview with Yahoo Finance on November 3, Goolsbee said he remains undecided ahead of the next FOMC meeting, raising his bar for further easing compared to recent decisions. Goolsbee's comments add to the mixed signals from Fed officials following the October 29 rate cut, where the committee lowered the federal funds target range by 25 basis points to 3.75%–4.00%. His emphasis on waiting for better visibility underscores the central bank's data-dependent approach amid heightened uncertainty.

Goolsbee’s Threshold for Easing: Higher than before

Goolsbee expressed reservations about accelerating rate cuts, pointing to inflation that has lingered above the Fed's 2% target for over four years and recent trends suggesting a reversal in disinflation progress: “I'm not decided going into the December meeting. My threshold for cutting is a little bit higher than it was at the last two meetings.”

He advocated for a measured pace, noting that while rates “can come down a fair amount,” it would be “most judicious to have the rates come down with inflation.” Goolsbee described current inflation dynamics as “trending the wrong way,” a shift from earlier optimism that had supported the September and October cuts aimed at bolstering the labor market.

On the jobs front, Goolsbee acknowledged some softening but stressed that core indicators—such as wage growth and hiring stability—remain resilient. However, the federal government shutdown has stalled key releases like jobs and inflation reports, creating a “lack of clarity” and relying on sparse private-sector data: “Very little private sector information about inflation,” he noted, cautioning against “front loading” cuts without solid evidence. This stance aligns with his September economic projections, where he forecasted a gradual easing contingent on sustained disinflation.

Highlights of comments by Fed’s Goolsbee:

·         I believe the place rates will settle at a fair bit below current levels

·         A golden path for the economy is still possible

·         Not much has changed since the September meeting

·         I am uneasy with frontloading rate cuts

·         Rates should come down with inflation

·         Inflation data still is worrisome

·         I'm not decided for what happens at the next Fed meeting; the threshold for cutting rates is higher than at the last two Fed meetings.

·         I have been more worried about inflation than job market risks

·         Some key job market metrics have been pretty stable

·         There are still concerns about the job market

·         It is important to be careful when the economy is in a time of transition

·         Inflation in services is an area of concern

·         I am cautious about layoff data

·         The hiring rate is low, which is one of the economy's weakest factors

·         It is unusual to have a low-hiring, low-firing economy

·         It is very hard to get the timing right in a time of transition

·         I am nervous about the inflation side of the ledger

·         The economy has been pretty strong, with weakness in specific sectors

·         Consumer spending is a key driver of economic momentum

Highlights of comments by Fed’s Daly: October 3, 2025

·         We need to keep policy modestly restrictive

·         I have an open mind in December

·         The 50 bps of cuts this year makes the Fed better positioned

·         We still have inflation above target; we need to get it down

·         A rate cut was appropriate; I supported the rate cut

·         It is not a more divided Fed than before. I wouldn't even use the word "divided"

·         We have less information than we used to, but we can still decide as needed

·         The labor market doesn't look like it's on a precipice

·         We will balance risks, and inflation is still printing around 3%

·         I look at pockets of softness as a leading indicator

·         If you wait for a job market report to tell you if the labor market is weak, you are already behind

·         I am surprised and pleased about the economic resilience

·         There's more vulnerability now in spending data, given the softening of the labor market

·         We're trying to balance the policy rate so it brings inflation down

·         Labor market slack is rising

·         It would be unfortunate to get inflation to 2% at the cost of millions of jobs.

On November 3, 2025, San Francisco Federal Reserve (SF Fed) President Mary Daly delivered measured remarks at the Forum Club of the Palm Beaches in West Palm Beach, Florida, offering a balanced perspective on the central bank's recent actions and its path forward. She affirmed her support for the FOMC’s decision just days earlier to reduce the benchmark interest rate by a quarter percentage point—the second such cut this year—describing it as "appropriate" in light of the economy's resilience, persistent inflation above the 2% target, and a labor market showing signs of softening but not distress.

Daly emphasized the need to maintain monetary policy in a "modestly restrictive" posture to navigate the dual risks of price stability and maximum employment, noting that the cumulative 50 basis points of reductions so far have positioned the Fed better to provide "insurance" against further employment weakening. She highlighted encouraging signals from alternative data sources, such as state-based unemployment insurance claims, which suggest the job market is far from a "precipice," even as official figures remain hampered by the ongoing federal government shutdown.

Looking toward the December 9-10 policy meeting, Daly urged the Fed to "keep an open mind" about another potential rate cut, underscoring a commitment to sifting through incoming data—including post-shutdown reports on jobs and inflation—to determine if additional support is warranted. Inflation, she observed, continues to "print around 3%," necessitating vigilance, yet she expressed confidence in the Fed's ability to balance these pressures without overreacting.

Addressing perceptions of discord among her colleagues following the 10-2 October vote, Daly rejected the notion of a "divided" committee, framing vigorous debate as a healthy response to an uncertain world. "I wouldn’t even use the word ‘divided,’" she stated, adding that "disagreement is usually what you see when the world is uncertain" and that such discussions are essential for robust decision-making. She also stressed the Fed's broader toolkit beyond government statistics, noting that "government data is not the only data we get" and that forward-looking insights often come from direct conversations with businesses and communities. Daly's comments, delivered amid a swirl of hawkish and dovish signals from other officials, reinforced the central bank's data-dependent ethos, positioning her as a pragmatic voice in the ongoing policy conversation.

On late October 3, 2025, Fed’s Governor Lisa Cook said in a prepared article: The Economic Outlook and Monetary Policy; Governor Lisa D. Cook; At The Brookings Institution, Washington, DC:

Relevant texts:

“Inflation

First, I will turn to inflation. Based on the available data for September, it is estimated that the PCE price index rose 2.8 percent in the 12 months ending in September, significantly above our 2 percent target. Core inflation, which excludes the volatile food and energy categories, was also estimated to be 2.8 percent. Both of these readings are as high as or higher than their readings a year before, propped up by an increase in tariff-affected goods prices.

My outreach to business leaders suggests that the pass-through of tariffs to consumer prices is not yet complete. Many firms have adopted a strategy of running down their inventories at lower price levels before raising prices. Others have reported waiting until tariff uncertainty is resolved before passing increases on to consumers. New car models, clothing lines, and other products will be coming onto the market, and that process will continue to provide firms with an opportunity to level set prices. As such, I expect inflation to remain elevated for the next year.

Nonetheless, the effect of tariffs on prices, in theory, should represent a one-time increase. It is encouraging that most long-run inflation expectations, including those from the New York Fed Survey of Consumer Expectations, are low and stable at this juncture. When excluding tariff effects, 12-month core PCE inflation through September appears to be about 1/2 percentage point lower at about 2.3 percent, suggesting that underlying inflation has continued to make progress toward the target. I assess that inflation is on track to continue on its trend toward our target of 2 percent once the tariff effects are behind us. The big caveat is that tariff effects must prove not to be persistent and that monetary policy remains appropriately focused on achieving that goal.

This is a point worth dwelling on for just a moment. The FOMC's firm commitment to its inflation mandate is imperative to ensure that inflation remains in check, as I do expect in my baseline forecast. So let me be clear. I am committed to reaching our 2 percent inflation target. Moreover, I will be prepared to act forcefully if the tariff effects appear to be larger or last longer than expected, or if other evidence emerges that higher levels of inflation are becoming entrenched in expectations.

Labor market

I will now turn to the labor market. We have less recent official data on the labor market, but the latest available indicators suggest that the labor market remains solid, though gradually cooling. The unemployment rate edged up over this summer from 4.1 percent in June to 4.3 percent in August, a relatively low reading one would expect to see in a healthy economy. To put 4.3 percent into perspective, the average unemployment rate over the 50 years preceding the pandemic was 6.2 percent. Since August, more recent labor-market indicators, such as UI claims, job postings, and individuals' assessments of job availability, signal little change to the August reading—at most a small uptick. Taken together, the slightly rising unemployment rate indicates the labor market is softening, but only modestly so.

I would be remiss if I did not mention the slowdown in payroll gains observed over the summer. In most cases, a sharp slowing in payrolls would suggest increasing slack and would generally be accompanied by an increase in the unemployment rate. However, in this instance, the slowing in payrolls can mostly be explained by a coincident decline in population growth due to immigration policy. Because they are currently driven by fluctuations in population growth, the payroll numbers do not provide a definitive signal about labor-market slack. Therefore, it would be prudent for us to consult the other indicators I already mentioned.

It is important to recognize that there appear to be worsening outcomes for vulnerable and low-to-middle-income (LMI) households. In the labor market, youth and Black unemployment rates, both of which tend to be more cyclical than total unemployment, have steadily risen since this spring through the latest readings in August. The deteriorating labor market experienced by these two vulnerable groups mirrors other emerging strains in some households' financial health and balance sheets. Among LMI households, we have observed large increases in delinquencies, especially last year, and there is some evidence that their spending has stagnated, in particular compared to the robust spending growth of their higher-income counterparts. This is sometimes called a "two-speed" economy, when the well-off are doing well, while LMI and vulnerable households are not.

Monetary policy works by affecting conditions for the entire economy and is not well-suited to produce specific outcomes for specific groups of people. Ultimately, I believe delivering on our dual-mandate goals will produce the best outcomes for all Americans. Nonetheless, policymakers need to monitor the two-speed economy. Understanding the challenges faced by so many Americans underscores the reasons why we need to get monetary policy right. Vulnerable and LMI households are the ones who will be the first and most hurt if the labor market were to suddenly deteriorate or if inflation were to remain too high.

Economic activity

To turn to economic activity, recent readings are consistent with solid overall growth. Output has been supported by household consumption that has held up better than expected earlier this year. Yet, what has been more striking is the strength of business investment. Business investment has been driven by investment in high-tech equipment and software, seemingly mostly related to AI. As I have mentioned in previous speeches, this suggests to me there is a reason to be sanguine about future productivity growth. I see AI as a general-purpose technology, on par with the steam engine and the personal computer, that has the potential to transform the economy and boost productivity. I expect this sector to continue to provide support to output growth over the next few years, at least.

In the very near term, I see the federal government shutdown as weighing on activity this quarter. Furloughing federal workers and forgoing government purchases of goods and services, including those provided by contractors, directly lowers output in the public sector. And spillover effects to the private sector are worth considering. Potential delays in government payments, permits, inspections, insurance provision, and other functions could slow certain spending and investment activities, and some small business contractors with very little cushion may never be paid and may ultimately close their businesses. I see both sets of effects as being largely temporary. It is anticipated that they would unwind in the following quarter after the shutdown ends.

In summary, after a temporary slowdown due to the government shutdown, I expect the economy to grow moderately over the medium term, supported by an AI productivity boom. I see the labor market as still solid, but I am highly attentive to downside risks. I see inflation as remaining somewhat elevated due to tariff effects and subject to upside risks.

Monetary Policy

Having articulated my outlook, I will turn to my current view of monetary policy. At the FOMC meeting last week, I supported the Committee's decision to lower the target range for the fed funds rate by a quarter-point to 3-3/4 to 4 percent. I viewed that decision as appropriate because I believe that the downside risks to employment are greater than the upside risks to inflation. I view the latest reduction in the fed funds rate as another gradual step toward normalization. I see the current policy rate as remaining modestly restrictive, which is appropriate given that inflation remains somewhat above our 2 percent target.

At last week's meeting, I also supported the decision to conclude the reduction of the aggregate securities holdings on the balance sheet on December 1. The long-stated plan had been to stop balance sheet runoff when reserves were somewhat above the level the Committee deemed consistent with ample reserve conditions. In the several weeks ahead of our latest meeting, signs, such as an increase in repo rates relative to administered rates, did emerge, suggesting this standard had been reached. These developments were anticipated as the size of the balance sheet declined and supported the decision to cease runoff.

Looking ahead, policy is not on a predetermined path. We are at a moment when risks to both sides of the dual mandate are elevated. Keeping rates too high increases the likelihood that the labor market will deteriorate sharply. Lowering rates too much would increase the likelihood that inflation expectations will become unanchored. As always, I determine my monetary policy stance each meeting based on the incoming data from a wide variety of sources, the evolution of my outlook, and the balance of risks. Every meeting, including December's, is a live meeting.”

Highlights of comments by Fed’s Cook:

·         I supported the Fed's move to stop shrinking its balance sheet (QT)

·         The Government shutdown is weighing on the economy, but growth should return

·         Artificial intelligence (AI) productivity gains will help power further expansion

·         Inflation is elevated and subject to upside risks

·         Labor market still solid; monitoring it for signs of trouble

·         Tariffs are still driving up price pressures

·         Slowing payroll growth tied to labor supply changes

·         Inflation should move to 2% target once tariff impacts pass through

·         I remain fully committed to getting inflation back to 2%

·         Underlying inflation is moving to 2%, and expectations are contained

·         The Fed is in a situation where its mandates are in tension

·         The Fed policy is always a balancing act

·         We don't see extensive softening in the labour market

·         The Fed uses a lot of alternative data, all of which is important to take into account

·         A limitation of private data is that it is benchmarked to government data, which is now delayed

·         As the shutdown continues, it will become more difficult to evaluate the economy

·         Generative AI could be a game-changer for productivity growth, though we still don't know how it will play out

·         AL could have a large negative consequence for the labour market

·         AI, if it boosts productivity, should have a positive impact on inflation in the long run, but the pace of adoption matters.

·         I would be concerned about anything that has grown as fast as private credit has

·         I hope the trajectory of federal debt changes in the near future

·         Hiring is slowing according to numerous real-time sources; it does not need the employment report for that

·         There's reason to be concerned about the unemployment uptick

·         I want to make sure that the regulatory mandate is carried out to the fullest extent

·         There is tension between asset valuations being high and low risk premia, but I still see policy as being restrictive

·         It is important to be timely and use the most current incoming data for the December rate decision

·         Watching tariff effects closely to understand how businesses and families react

·         Also attentive to inflation expectations through the NY Fed and other surveys

·         I would be ready to act if inflation proves more persistent

·         I am worried about the labour market because it can deteriorate very quickly

·         The Fed's mandates are in tension right now, attentive to risks on both sides

·         The announced layoffs may not materialize; we need to see the data

·         Public service is worth the scrutiny it involves

·         Tariffs are still driving up price pressures

·         Slowing payroll growth tied to labor supply changes

·         Inflation should move to 2% target once tariff impacts pass through

·         Tariff pass-through is still playing out

·         Underlying inflation is moving to 2%, and expectations are contained

·         Remains fully committed to getting inflation back to 2%

·         Every meeting is 'live', not on a preset path

·         Fed cut was appropriate given risks to jobs

·         Risks to both sides of the mandate are appropriate

·         Government shutdown weighs on the economy, but growth should return

·         AI productivity gains will help power expansion

On November 3, 2025, Federal Reserve Governor Lisa D. Cook delivered her first public remarks since President Donald Trump's attempted dismissal of her in late August, speaking on "The Economic Outlook and Monetary Policy" at The Brookings Institution in Washington, D.C. In a poised address amid her ongoing legal battle—blocked by courts and pending before the Supreme Court—Cook briefly alluded to the scrutiny of public service, stating it requires "thick skin" for principles worth pursuing, and vowed to continue executing her Senate-confirmed mandate on behalf of the American people. "This too shall pass," she noted, emphasizing central bank independence as "something worth pursuing" while declining further comment on the litigation, citing her legal team's filings.

Turning to the economy, Cook highlighted the challenges of assessing conditions during the federal government shutdown, which has disrupted key data releases from agencies like the Bureau of Labor Statistics and Bureau of Economic Analysis. She stressed reliance on alternative sources—administrative data, private-sector indicators (e.g., unemployment insurance claims, online job postings, pricing from firms), Reserve Bank outreach, and the Beige Book—to fill gaps, noting these high-frequency tools have proven essential.

On inflation, Cook reported that September's estimated PCE price index rose 2.8% over 12 months, with core at the same level—both "significantly above our 2 percent target" and propped up by tariff-affected goods. Excluding tariffs, core PCE was about 2.3%, indicating underlying progress. Business outreach revealed incomplete pass-through of tariffs, with firms delaying price hikes via inventories or awaiting resolution, leading her to expect elevated inflation "for the next year" but viewing tariff effects as a "one-time increase." Long-run expectations remain stable, and she anticipates a return to 2% once tariffs fade, provided they prove transient. "I am committed to reaching our 2 percent inflation target," Cook affirmed, adding she would "act forcefully" if effects persist or inflation entrenches in expectations.

Regarding the labor market, Cook described it as "solid, though gradually cooling," with the unemployment rate at 4.3% in August (up from 4.1% in June)—still low historically compared to a 50-year pre-pandemic average of 6.2%. Recent indicators show little change, at most a small uptick. Summer payroll slowdowns were largely attributed to reduced population growth from immigration policy, not rising slack. However, she flagged worsening outcomes for vulnerable groups: rising youth and Black unemployment, plus strains on low-to-middle-income (LMI) households via higher delinquencies and stagnant spending—a "two-speed" economy where higher-income groups thrive. These disparities underscore the need for sound policy, as LMI households suffer most from labor deterioration or persistent inflation.

Economic activity remains supported by resilient consumption and strong business investment, particularly in AI-related high-tech, which Cook views optimistically as a general-purpose technology boosting productivity like past innovations. The shutdown temporarily weighs on growth via furloughs and spillovers, but effects should unwind post-resolution. Overall, she forecasts moderate medium-term growth, AI-driven, with heightened downside risks to employment outweighing upside inflation risks.

On monetary policy, Cook supported the FOMC's October 25 basis point cut to 3.75%–4.00%, seeing it as a "gradual step toward normalization" with rates "modestly restrictive"—appropriate given elevated inflation but shifting risks favoring employment. She also backed ending balance sheet runoff on December 1, as reserves reached ample levels amid repo rate signals. "Policy is not on a predetermined path," she stressed, with elevated risks to both mandate sides: overly tight policy risks sharp labor weakening, while easing too much could unanchored expectations. Decisions will be data-driven at each meeting, including December's "live" one, based on evolving outlook and alternative sources.

Cook's remarks, blending vigilance on inflation with attentiveness to labor vulnerabilities, reinforced a balanced, flexible stance amid uncertainty, while subtly affirming her resolve to uphold the Fed's independence.

Conclusions

Fed Chair Powell and most of the other FOMC participants are clearly not in favor of another 25 bps back-to-back rate cut in December’25. The US core inflation is now hovering around 3.0% on an average (vs 2.0% targets) and unemployment rate 4.3% (vs 4.0% Fed comfort levels and 3.8% Fed aspirational target); i.e. Fed needs to lower core inflation by at least 100 bps and unemployment rate 80 bps on a sustainable basis to achieve its dual mandate of maximum employment (as per current & evolving economic situations/labor market conditions) and minimum price stability.

For the price stability mandate, the Fed now theoretically needs rate hikes to bring down the demand side of the economy to match the constrained supply. But for the employment side of the mandate, the Fed also needs to cut rates moderately to prevent further economic slack. Thus, the Fed is now maintaining real policy rates at neutral levels (+1.0% from average core CPI inflation), which is 4.0% (vs 3.0% core CPI-3MRA); not restrictive (+1.50% from average core CPI) or accommodative (-0.50% from average core CPI).         At 3.0% average core inflation, accommodative, neutral, and restrictive Fed repo rates will be 2.50%-4.00%-4.50% respectively.

Overall, as the base case scenario, the Fed should cut 50 bps each in 2025 and 2026; but if US core inflation indeed surges further to 3.50% on average in 2026, it would be very difficult for the Fed to justify 50 bps rate cuts even after assuming Trump's tariff inflation is transient. And a potential new Fed leadership, loyal to Trumponomics and Trump's ZRIP philosophy, may find it difficult to justify even 50 bps rate cuts in 2026.

At present, as the US economy is solid in terms of overall economic activities, there is an upside risk in both inflation and unemployment; i.e., there may be a stagflation-like scenario in 2026. Thus, the Fed has to wait for at least till H1CY26 for actual data & evolving outlook and may not cut rates before September '26. Fed works on potential economic outlook, not actual data, to stay ahead of the curve. The weighted average Trump tariffs are now around 10% and the Fed has to wait to see the actual impact of Trump tariffs in 2026.

Bottom line: Fed may not cut in December’25 despite Waller & Miran pivot

Despite Trump's savvy potential next Fed Chair, Waller's pivot and advocacy for December'25 rate cuts, Waller & Co. is clearly in the minority camp. Trump's ultra-bullying tactics have made known Fed doves & hawks united behind Chair Powell, and thus Powell almost poured cold water on December'25 rate expectations with a hint of hawkish FOMC minutes. Fed may show another 50 bps rate cuts in 2026 in its December'25 dot-plots with a cautionary note. Although most of the Fed policymakers are of the opinion that at a 4.0% repo rate, it's still in a modest restrictive zone, in reality, the Fed will now maintain a 1.0% real positive (against average core inflation/CPI) rate as neutral against pre-COVID levels of 0.50%. Fed will keep 3.0% repo rate against 2.00% average core inflation target for the longer run,

Trump may stick to his flip-flop (bullying) negotiation tactics to get better tariff deals for the US, and he may continue this back & forth on tariffs till at least December 2025. Looking ahead, if, by early 2026, Trump's tariff policy does get clarity, then the Fed may modify its dot-plots in March'26 SEP and go for a 50 bps rate cut each in 2026-27 for a terminal rate of 3.00% by Dec'27 instead of Dec'28. As the present weakness in the US labor market is largely structural due to Trump policy uncertainty and AI issues, the Fed's rate cuts may not ensure higher employment; it's now a supply issue, rather than demand; the Fed's policy tool largely works on demand management, not supply.

Market Impact

Gold, US stock futures tumbled sharply in early trading Tuesday on fading hopes of another Fed rate cut in December'25 as the market may be now realizing that Waller & Co is in the minority camp (Trump loyalists, seeking ZRIP). The market is also concerned about the AI bubble, as at SPX-500 TTM PE is now hovering above 31 at around 7000 levels (Q2CY25 TTM EPS ~223). Wall Street is also worried about mixed report cards and guidance amid Trump policy uncertainty and a potential US-China fragile trade truce. Also, Wall Street and Main Street are both worried about a growing manufacturing recession and a late 2019 like REPO tantrum; Fed has to inject ~$21B liquidity into money market (OMO/quasi QE).

Treasury yields edged lower in response, with the 10-year note falling to 4.08% from near four-week highs around 4.1%, buoyed by the Treasury Department's revised Q4 borrowing estimate of $569 billion—$21 billion below July projections, thanks to a higher starting cash balance. The dollar index, meanwhile, firmed above 99.5, hitting three-month highs against major currencies as traders pared bets on aggressive Fed easing. Markets now price in a 65-70% chance of a 25 basis point December rate cut, down from 94% pre-October FOMC but up slightly from 60% earlier this week, reflecting the central bank's divided stance.

The S&P 500 futures slid 1.1%, Nasdaq 100 contracts dropped 1.4%, and Dow Jones futures shed over 400 points, extending Monday's mixed close, where tech stocks lifted benchmarks despite broader weakness. The retreat comes after Wall Street executives, including Morgan Stanley and Goldman Sachs CEOs, warned of an impending correction at a Hong Kong summit, citing stretched valuations and slowing AI momentum.

Corporate results added to the volatility, with AI darling Palantir Technologies plunging nearly 8% premarket despite Q3 beats and raised guidance—63% year-over-year revenue growth to $1.083-$1.085 billion, driven by AIP platform adoption and a $10 billion US Army contract. Analysts flagged overvaluation, with shares up 151% YTD and a consensus price target implying 24% downside. Vertex Pharmaceuticals dropped 3.8% on mixed results ($4.80 EPS, $3.08 billion revenue), while Hims & Hers Health surged 5% on Novo Nordisk talks for Wegovy distribution.

Monday's session saw narrow AI gains: Amazon soared 4% to record highs on a $38 billion, seven-year AWS deal with OpenAI for hundreds of thousands of Nvidia GPUs, fueling ChatGPT workloads through 2026 and beyond. Nvidia climbed 2.2% after Microsoft's UAE chip license, but the Dow fell 0.48% as over 300 S&P 500 names closed red, highlighting tech concentration risks.

Eyes now turn to Tuesday's reports from AMD, Uber, Spotify, Pfizer, and Super Micro Computer, with AI capex projected to hit 94% of cash flows in 2025-2026.

Weak ISM Manufacturing PMI underscored slowdowns, dipping to 48.7 in October—an eighth straight contraction (down 0.4 points from September)—with production and inventories dragging amid tariff mentions in comments. Prices cooled, but new orders ticked up slightly, pointing to gradual softening rather than collapse.

Outlook: Data Drought Meets Earnings Crunch

Tuesday's session risks deeper losses if earnings disappoint, with the S&P 500's 17.96% YTD gain masking narrow breadth—Magnificent Seven up 1.2% Monday alone. Fed divisions suggest a "live" December meeting, but shutdown delays could prolong uncertainty. Analysts like Goldman Sachs see stabilization if jobs data softens without inflation spikes, potentially rebounding cut odds to 70%+. Yet, with tariffs looming and AI capex straining balance sheets, the rally's "legs" face a stern test.

Technical outlook: DJ-30, NQ-100, SPX-500 and Gold

Looking ahead, whatever may be the narrative, technically Dow Future (CMP: 47700) now has to sustain over 48000 for a further rally to 48300* and 48600/49000-49700/50000 in the coming days; otherwise sustaining below 47900-47700, DJ-30 may fall to 47200/47000-46500/46200 and further 45500/44950-44500/44200 and 43500 in the coming days.

Similarly, NQ-100 Future (25800) now has to sustain over 26100 for a further rally to 26200-26500 in the coming days; otherwise, sustaining below 25750, NQ-100 may fall to 25300/25000-24700/24500-24300/24300 and 23700/23400/23000 and 22600/22400 in the coming days.

Looking at the chart, technically SPX-500 (CMP: 6880) now has to sustain over 7050-7100 for a further rally to 7200/7300-7500/8300 in the coming days; otherwise, sustaining below 7025/6900-6800/6750, may fall to 6650/6595 and 6490/6450-6375/6300-6250/6200 and further fall to 6080 in the coming days.

Looking at the chart, Technically Gold (CMP: $4025) has to sustain over 4060-4125 for a further recovery to 4395-4405 for 4425/4455-4475/4500 to 4555-4575 and even 5000 zone in the coming days; otherwise sustaining below 4050-3875, Gold may again fall to 3770 and 3700/3600-3500/3450 and 3350 levels in the coming weeks.