Stocks and Gold slid on a hawkish Fed cut; to be on hold in Dec

 

·         Fed Chair Powell poured cold water on Dec’25 rate cut expectations; Fed will now maintain neutral repo rate (AVG CORE CPI +1.00%)

·         Fed to bring down both core inflation and unemployment rate to 2.00% and below 4.00% (~3.80%) in a calibrated manner

·         For 2026, the Fed will maintain a neutral rate rather than a restrictive (core CPI+1.50%) or accommodative (Core CPI-0.50%) rate

·         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

·         Fed credibility may now be at stake as the Fed is partially embroiled between Trump loyalists and critics; the Fed is now politically influenced

On Wednesday, October 29, 2025, apart from the ongoing Trump reality shows and his Asia trip, including a meeting with China’s President Xi, the focus of the market was also on the FOMC meeting, the Fed’s policy decisions, and Chair Powell’s pressers. On Wednesday, as highly expected, the Fed cuts all of its key policy rates by another 25 bps (following the September cut). Fed cuts target range for the Federal Fund's Rate (FFR-interbank rate-SOFR) to 3.9% (median of 4.00-3.75%); primary credit rate (repo rate) 4.00%; IOER (reverse repo rate) 3.85%; overnight repurchase (ONRP) agreement rate (ON RP) 4.00% and ONRRP (Overnight Reverse Repurchase Agreement Rate) to 3.75%. The Fed also kept the pace of QT for USTs at 5B/M officially, but confirmed the end of QT by December 1, 2025.

The market was expecting one more consecutive rate cut in December '25. But Chair Powell almost poured cold water and clearly stated that it's not the case. Powell said:

“With today's decision, we remain well-positioned to respond in a timely way to potential economic developments. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks. We continue to face two-sided risks. In the Committee’s discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a forgone conclusion—far from it. Policy is not on a preset course.”

Thus, overall, it's a hawkish cut and stock futures. Gold slid on fading hopes of another Fed rate cut in December’25. Also, as highly expected, Trump-savvy FOMC participant Miran voted for a 50 bps rate cut, but another neutral member, Schmid, preferred no rate cut, unexpectedly.

Full text of Fed’s statement: October’29, 2025

Federal Reserve issues FOMC statement

“Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months.

In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee decided to conclude the reduction of its aggregate securities holdings on December 1. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures, inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Austin D. Goolsbee; Philip N. Jefferson; Alberto G. Musalem; and Christopher J. Waller. Voting against this action were Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/2 percentage point at this meeting, and Jeffrey R. Schmid, who preferred no change to the target range for the federal funds rate at this meeting.”

Implementation Note issued October 29, 2025

Decisions Regarding Monetary Policy Implementation

The Federal Reserve has made the following decisions to implement the monetary policy stance announced by the Federal Open Market Committee in its statement on October 29, 2025:

·         The Board of Governors of the Federal Reserve System voted unanimously to lower the interest rate paid on reserve balances to 3.90 percent, effective October 30, 2025.

As part of its policy decision, the Federal Open Market Committee voted to direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive:

"Effective October 30, 2025, the Federal Open Market Committee directs the Desk to:

·         Undertake open market operations as necessary to maintain the federal funds rate in a target range of 3-3/4 to 4 percent.

·         Conduct standing overnight repurchase agreement operations with a minimum bid rate of 4.0 percent and with an aggregate operation limit of $500 billion.

·         Conduct standing overnight reverse repurchase agreement operations at an offering rate of 3.75 percent and with a per-counterparty limit of $160 billion per day.

·         Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in October and November that exceeds a cap of $5 billion per month.

·         Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Beginning on December 1, roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities.

·         Reinvest the amount of principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities (MBS) received in October and November that exceeds a cap of $35 billion per month into Treasury securities to roughly match the maturity composition of Treasury securities outstanding. Beginning on December 1, reinvest all principal payments from the Federal Reserve's holdings of agency securities into Treasury bills.

·         Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons."

·         In a related action, the Board of Governors of the Federal Reserve System voted unanimously to approve a 1/4 percentage point decrease in the primary credit rate to 4.0 percent, effective October 30, 2025.

Key FOMC Decisions: October 29, 2025

Key Interest Rates (Federal Funds Rate): The target range was lowered by 25 bps to 3.75%–4.00%. This reflects a gradual easing stance amid cooling inflation and a balanced labor market, but with caution on the pace of further cuts. This was the Fed's second rate cut of 2025, following a similar 25 basis point (bps) reduction in September.

·         Prior range (pre-September cut): 4.25%–4.50%.

·         Post-September cut: 4.00%–4.25%.

Balance Sheet Normalization (Quantitative Tightening - QT): The Fed announced the end of active QT, shifting to a more neutral posture. Starting in November 2025, the Committee will allow Treasury securities holdings to increase modestly (e.g., via reinvestments in line with nominal GDP growth) to maintain "ample" reserves in the banking system. This avoids restarting full quantitative easing (QE) but signals a pivot from contractionary balance sheet (QT) policy. The Desk at the New York (NY) Fed will continue managing overnight repo operations to support liquidity, with adjustments as needed.

Economic Assessment from the FOMC Statement

The statement highlighted a resilient but uncertain U.S. economy, with tweaks from September emphasizing moderation in activity and persistent (though declining) inflation risks.

·         Economic Activity: "Recent indicators suggest that economic activity has continued to expand at a moderate pace." (Shifted from "moderated" in September.)

·         Labor Market: "The unemployment rate has stabilized at a low level, and conditions remain solid." Job gains have moderated but are still positive.

·         Inflation: "Inflation remains somewhat elevated," with recent CPI data showing a 3.0% year-over-year rise in September 2025 (up slightly from 2.9% in August). The Fed reiterated its 2% long-term target.

·         Risks: "Uncertainty about the economic outlook remains elevated," with balanced risks to both employment and inflation goals. External factors like potential tariffs were noted as upside risks to inflation.

·         The Committee voted unanimously (10-0) for the QT action, with no dissents reported in the initial release.

Full text of Fed Chair Powell’s opening statement: October 29, 2025

“Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. Although some important federal government data have been delayed due to the shutdown, the public- and private-sector data that have remained available suggest that the outlook for employment and inflation has not changed much since our meeting in September. Conditions in the labor market appear to be gradually cooling, and inflation remains somewhat elevated.

In support of our goals, and in light of the balance of risks to employment and inflation, today the Federal Open Market Committee decided to lower our policy interest rate by ¼ percentage point. We also decided to conclude the reduction of our aggregate securities holdings as of December 1. I will have more to say about monetary policy after briefly reviewing economic developments.

Available indicators suggest that economic activity has been expanding at a moderate pace. GDP rose at a 1.6 percent pace in the first half of the year, down from 2.4 percent last year. Data available before the shutdown show that growth in economic activity may be on a somewhat firmer trajectory than expected, primarily reflecting stronger consumer spending. Business investment in equipment and intangibles has continued to expand, while activity in the housing sector remains weak. The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends.

In the labor market, the unemployment rate remained relatively low through August. Job gains have slowed significantly since earlier in the year. A good part of the slowing likely reflects a decline in the growth of the labor force, due to lower immigration and labor force participation, though labor demand has clearly softened as well. Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low, and that both households’ perceptions of job availability and firms’ perceptions of hiring difficulty continue to decline. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months.

Inflation has eased significantly from its highs in mid-2022 but remains somewhat elevated relative to our 2 percent longer-run goal. Estimates based on the Consumer Price Index suggest that total PCE prices rose 2.8 percent over the 12 months ending in September and that, excluding the volatile food and energy categories, core PCE prices rose 2.8 percent as well. These readings are higher than earlier in the year as inflation for goods has picked up. In contrast, disinflation appears to be continuing for services. Near-term measures of inflation expectations have moved up, on balance, over the course of this year on news about tariffs, as reflected in both market- and survey-based measures. Beyond the next year or so, however, most measures of longer-term expectations remain consistent with our 2 percent inflation goal.

Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today’s meeting, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent.

Higher tariffs are pushing up prices in some categories of goods, resulting in higher overall inflation. A reasonable base case is that the effects on inflation will be relatively short-lived—a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent, and that is a risk to be assessed and managed. Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem.

In the near term, risks to inflation are tilted to the upside and risks to employment to the downside—a challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate. With downside risks to employment having increased in recent months, the balance of risks has shifted. Accordingly, we judged it appropriate at this meeting to take another step toward a more neutral policy stance.

With today's decision, we remain well-positioned to respond in a timely way to potential economic developments. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks. We continue to face two-sided risks. In the Committee’s discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a forgone conclusion—far from it. Policy is not on a preset course.

At today’s meeting, the Committee also decided to conclude the reduction of our aggregate securities holdings as of December 1. Our long-stated plan has been to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions. Signs have clearly emerged that we have reached that standard. In money markets, repo rates have moved up relative to our administered rates, and we have seen more notable pressures on selected dates along with more use of our standing repo facility. In addition, the effective federal funds rate has begun to move up relative to the rate of interest on reserve balances. These developments are what we expected to see as the size of our balance sheet declined and warrant today’s decision to cease runoff.

 Over the 3-1/2 years that we have been shrinking our balance sheet, our securities holdings have declined by $2.2 trillion. As a share of nominal GDP, our balance sheet has fallen from 35 percent to about 21 percent. In December, we will enter the next phase of our normalization plans by holding the size of our balance sheet steady for a time while reserve balances continue to move gradually lower as other non-reserve liabilities, such as currency, keep growing. We will continue to allow agency securities to run off our balance sheet and will reinvest the proceeds from those securities in Treasury bills, furthering progress toward a portfolio consisting primarily of Treasury securities. This reinvestment strategy will also help move the weighted average maturity of our portfolio closer to that of the outstanding stock of Treasury securities, thus furthering the normalization of the composition of our balance sheet.

The Fed has been assigned two goals for monetary policy: maximum employment and stable prices. We remain committed to supporting maximum employment, bringing inflation sustainably to our 2 percent goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.”

Highlights of Fed Chair Powell’s statements/comments in the Q&A: October 29, 2025

·         Inflation remains somewhat elevated.

·         Data available suggests that the outlook for employment and inflation has not changed much since the September meeting.

·         Before the shutdown, data showed that growth may be on a firmer trajectory.

·         The shutdown will weigh on economic activity while it persists, but should reverse when it ends.

·         Labor demand has clearly softened.

·         Available evidence suggests that layoffs and hiring remain low.

·         Fed estimates total PCE and core PCE rose 2.8% in September’25

·         Disinflation in services continues.

·         Most measures of long-term inflation expectations are consistent with the goal.

·         Higher tariffs are pushing up some goods prices.

·         A reasonable base case is that tariff effects on inflation will be short-lived. It is our obligation to ensure it does not become an ongoing problem.

·         The balance of risks has shifted, and there is no risk-free path for policy.

·         Strongly differing views at the meeting about how to proceed in December'25.

·         December cut is not for sure, far from it.

·         Further reduction in December is not a foregone conclusion.

·         December will enter the next balance sheet phase and hold steady for a time.

·         Tension between two goals, and strong views across the committee.

·         We haven't made a decision about December.

·         Today's cut was risk management; going forward is a different thing.

·         We can't address both employment and inflation risks with our one tool.

·         Policymakers have different forecasts and different risk tolerances.

·         We haven't decided about December; this is in addition to the usual.

·         Reserves will keep declining as other liabilities grow.

·         There is a clear assessment that we are only slightly above ample in reserves.

·         If we see data, the labour market is stabilizing or strengthening, it would play into policy decisions.

·         Not seeing an uptick in claims or a downtick in openings suggests gradual cooling, which gives some comfort.

·         The state-level jobless claims data sends the signal that things are the same.

·         If there is a high level of uncertainty, that could be an argument for caution on moving.

·         High uncertainty could be an argument in favor of caution.

·         For today's rate cut, a strong, solid vote, and the strongly differing views were really about the future.

·         The labor market is not clearly declining quickly.

·         The Fed will be adding reserves again at a certain point.

·         We want to move the balance sheet to shorter-duration, but have not decided on an endpoint.

·         Directionally, CPI was a little softer than expected.

·         Inflation away from tariffs is not so far from 2% goal, maybe 5 or 6 10ths.

·         Core PCE ex-tariffs might be 2.3% or 2.4%.

·         I don't see a tight labour market or inflation expectations moving, which could make inflation persist.

·         Data centre investments and AI are a big deal.

·         Spending on data centers isn't especially interest-rate sensitive.

·         Could imagine a shutdown could affect the December meeting.

·         Driving in the fog, you could slow down.

·         I am not committing to the idea that we would need to slow down, but you could imagine it.

·         Much of the time, the layoffs are about AI; yes, it could have implications for job creation.

·         Some people on the committee feel it's time to take a step back.

·         Fed rate is now in the range of many estimates of neutral.

·         There is a growing chorus of feeling we should maybe wait a cycle.

·         Demand for workers has fallen a little more than supply, and our tool supports demand.

·         It takes a while for tariffs to get to consumers.

·         Could get 2 or 3 or 4 more tenths of inflation from tariffs, but it should be one-time.

·         This is different from the dot-com era, and there was a clear bubble back then.

·         Then, they were ideas, not companies; it was a clear bubble; this time, they have earnings, profits.

·         Seeing some softening, the economy is growing about 1.6% this year, slower than last year.

·         If not getting info, and the economy looks unchanged, there will be an argument to slow down on cuts.

·         We do not see weakness in the job market accelerating; then again, we didn't get the September payroll report.

·         Indeed, job openings suggest the market has been stable for the last 4 weeks.

December Cut: “Not a Foregone Conclusion – Far From It”-But nothing is final for December as of now

“Well, as I just mentioned, a further reduction in the policy rate at the December meeting is not a foregone conclusion, as I've just said. So, I would say that needs to be taken on board. We had -- just say this, 19 participants on the Committee, everyone works very hard at this and takes their obligations to serve the American people very seriously. And at a time when we have tension between our two goals, we have strong views across the Committee. And as I mentioned, there were strongly differing views today, and the takeaway from that is that we haven't made a decision about December, and we're going to be looking at the data that we have, how that affects the outlook and the balance of risks, and I'll just say that.”

To balance dual mandate of maximum employment and minimum inflation (price stability), Fed now needs to be at neutral (+1.0% from average core inflation levels); at 4.0% repo rate and 3% average core CPI, Fed is now at neutral after today’s rate cut; the same analogy applies for 100 bps rate cuts during September-December’24 (last year)

“So, the way we have been thinking -- well, I've been thinking about it, is the risks to the two goals, for a very long time, the risk was clearly of higher inflation, and then that has changed now. And as we saw the -- particularly after we saw -- at the July meeting, we saw downward revisions in job creation, we saw a very different picture of the labor market, and suggested that there were higher downside risks to the labor market than we had thought. And that suggested that policy, which we had been holding at a -- I would say modestly, other people would say moderately, restrictive level, needed to move more in the direction, over time, of neutral. If the two goals are sort of equally at risk, then you ought to be neutral, because one of them is calling for you to hike, and one of them is calling for you to cut. So if that got back into balance, then you'd want to be roughly at neutral. So in that sense, it was a risk management, and I would say the same about today-- Sort of the same logic. But as I mentioned, going forward is a different thing.”

Powell dismissed AI and equity wealth as driving factors for anyone on the Committee. He reiterated the core tension: upside risks to inflation, downside risks to employment, and only one policy tool to address both. Committee members, he explained, held divergent forecasts—some expecting faster disinflation, others slower—and different tolerances for missing on either goal. Some feared inflation overshooting more than others feared labor-market undershooting. Those differences, already visible in the Summary of Economic Projections and in public remarks between meetings, had crystallized into strongly opposing views in the room. That was why, Powell stressed, December remained completely open and far from a done deal.

On the current repo tantrum, Powell acknowledged that could be one contributing factor, but emphasized that the signals the Fed monitors—rising repo rates, the effective federal funds rate edging above interest on reserve balances, and greater use of the standing repo facility—were exactly the indicators the Committee had long said would trigger an end to runoff. The balance sheet was now shrinking at a glacial pace, and reserves would continue to decline organically as currency and other non-reserve liabilities grew. With ample reserves clearly in sight and tightening conditions accelerating over the prior three weeks, the Committee saw broad support for halting runoff on December 1. The brief lead time, Powell noted, would give markets a chance to adjust smoothly.

Powell agreed that stronger or steadier labor data would absolutely influence future decisions. The Fed was still receiving useful indicators: state-level unemployment claims showed no deterioration, job openings remained stable, and upcoming survey data, along with the Beige Book, would flesh out the picture. So far, the evidence pointed to continued gradual cooling—nothing sharper—which offered some reassurance.

Powell acknowledged the loss of granularity but insisted that alternative sources—private payrolls, claims, inflation proxies, and the Beige Book—would still provide a workable view. A major shift in the economy would likely surface even without official data. As for December, six weeks remained a long horizon. If uncertainty stayed elevated, that could argue for caution, but the Committee would wait and see how the information flow evolved: “If you’re driving in fog, you slow down.”

Powell clarified that the dissents did not undermine the cut: the vote for 25 basis points was solid. The real disagreement concerned the path ahead, particularly in December. Members were reacting to upward revisions in growth forecasts for 2025 and 2026—some quite substantial—while the labor market showed no sharp decline, only gradual cooling. Different expectations about the economy and varying tolerances for inflation versus employment risks had produced the sharp split he had flagged.

Powell confirmed that freezing the balance sheet’s size would initially allow reserves to drift lower as currency and other non-reserve liabilities grew organically. That shrinkage would not last long, however. At some point—timing uncertain—the Fed would begin adding reserves gradually to keep pace with the banking system and the broader economy. Meanwhile, maturing mortgage-backed securities would be reinvested in Treasury bills, shifting the portfolio toward a shorter duration and a composition more aligned with the outstanding stock of Treasuries. The process would be slow and deliberate, with no immediate market impact.

Powell noted that without the follow-up Producer Price Index, the translation to PCE inflation—the Fed’s preferred gauge—remained preliminary, though directionally the report was slightly softer than anticipated. Breaking it into three buckets, he explained that goods prices had risen, reversing a long trend of mild deflation, and that increase was almost entirely tariff-driven. Housing services inflation, by contrast, was finally declining as long expected. The largest category—non-housing services—had been moving sideways, but much of the stickiness came from non-market services, which include imputed financial charges tied to stock-market gains and which the Fed does not view as signaling economic overheating. Stripping out tariffs, core PCE was likely in the 2.3 to 2.4 percent range—close to target. Tariff effects, he reiterated, were expected to be a one-time price-level shift, but the Committee was vigilantly monitoring pathways to persistence, such as a tight labor market or unanchored expectations—neither of which was evident.

Powell clarified that the persistent piece was largely the non-market, non-housing component, which should naturally fade as equity-related imputations normalize. The rest of the services inflation, he said, remained responsive to the modestly restrictive policy stance, which was already producing gradual economic and labor-market cooling. That restraint, combined with the Fed's unwavering commitment to 2 percent—reflected in anchored long-term surveys and market pricing—would continue to guide inflation lower.

Powell acknowledged the scale of the AI build-out—data centers sprouting nationwide and globally, with major corporations pouring resources into the technology—but rejected the idea that it signaled loose policy. The spending, he argued, was driven by long-run productivity expectations rather than short-term borrowing costs. Unlike housing or traditional capex, AI infrastructure was not particularly interest-sensitive; 25 or 50 basis points would not meaningfully alter the calculus. The Fed was monitoring outcomes but saw no evidence that rate cuts would spark excess or bubbles in the space.

Powell listed several: PriceStats, Adobe price indices, ADP payrolls for wage trends, and a host of spending indicators. The upcoming Beige Book would also provide qualitative color. None of these, he stressed, could fully substitute for government statistics, but together they painted a usable picture. Material shifts in inflation or growth would likely surface even without granular official data.

Powell called the data shutdown situation temporary and stressed that the Committee would gather every available data point and evaluate it rigorously—that was its job. A fogged-in windshield, he said, usually means slowing down. The shutdown could influence December, but he made no commitment; if visibility remained poor, caution might be warranted, though official data could still return in time.

 “This is a temporary state of affairs. And we're going to do our jobs, we're going to collect every scrap of data we can find, evaluate it, and think carefully about it. And that's our jobs, that's what we're going to do. If you ask me, could it affect the December meeting? I'm not saying it's going to, but yeah, you could imagine that -- what do you do if -- what do you do if you're driving in the fog? You slow down. So that could or could not, I don't know how that's going to play into things. We may get -- the data may come back. But there's a possibility that it would make sense to be more cautious about moving-- I'm not -- I'm not committing to that, I'm just saying it's certainly a possibility that you would say, we really can't see, so let's slow down.”

Powell confirmed the recent spate of corporate layoffs was under close watch. Corporate announcements of hiring freezes or cuts, frequently justified by AI productivity gains, could certainly affect job creation, though the signal had not yet appeared in initial claims data—a lag he said was expected. On the K-shaped recovery, he pointed to earnings calls from major consumer-facing firms: many reported lower-income households cutting back and trading down, while high-income spending remained robust. The anecdotal evidence was mounting, and the Fed took it seriously.

Powell clarified that the December rate cut hesitation stemmed from the Committee’s own internal perspectives. After cutting 150 basis points since July, the policy rate now sat in the 3 to 4 percent range, where many estimates of neutral resided. Some members believed the neutral rate might be higher, an unobservable but arguable point. For them, it was time to pause and verify whether labor-market risks were real or whether recent stronger growth was the more reliable signal. The labor market usually offered a clearer read on economic momentum than spending data, yet here it painted a more downbeat picture. With two 25-basis-point cuts in the last two meetings, a faction argued for stepping back; others wanted to press on. That split, Powell said, was the source of the strong divergence. The October FOMC minutes will show that most of the FOMC participants have a less dovish view going forward.

Powell insisted every participant shared the same goals: maximum employment and 2 percent inflation. Differences arose in execution—partly from divergent forecasts, but mostly from varying risk tolerances. Some feared inflation overshoots more; others feared employment shortfalls. Those tolerances, common across Fed cycles, had produced the disparate views already visible in the September Summary of Economic Projections and in public speeches. After moving 150 basis points closer to neutral in a year, a growing chorus now favored at least one meeting’s pause. That was the debate laid bare in the room.

To explain the current weakening in the job market and how the latest rate cut would help, Powell identified two main forces. First, a sharp drop in labor supply: declining participation, which he called cyclical, and a steep fall in immigration—a policy shift that began in the prior administration and had accelerated. That supply contraction, he said, was the dominant story. Second, labor demand had also eased, pushing the unemployment rate slightly higher as demand fell more than supply. Job creation, after adjusting for likely overcounting in BLS methodology, was effectively near zero. Sustaining maximum employment at zero net job growth struck him as an odd equilibrium. The Fed’s tool—interest rates—works on the demand side. By cutting, the Committee had made policy meaningfully less restrictive (though not accommodative), aiming to prevent further deterioration. Some argued supply shocks were beyond the Fed’s reach, but Powell and others believed supporting demand was still appropriate and effective.

Powell's earlier description of a one-time price increase. Should consumers expect inflation to keep rising this year? Powell said yes, modestly. Tariffs phased in since February were still filtering through supply chains and would continue into spring, adding perhaps two to four tenths to headline inflation—small in aggregate but sharp on specific goods. Once fully implemented, however, they would stop pushing prices higher, leaving a higher price level but no ongoing inflation impulse. Measured inflation would then revert toward the non-tariff trend, already near 2 percent. Consumers, he acknowledged, were unmoved by the "one-time" narrative. They felt the cumulative burden of 2021–2023 inflation, and even slower price increases did not erase the sting of permanently higher costs. Only rising real incomes over time would ease that pain.

Michael McKee of Bloomberg Television and Radio asked whether Powell had concerns that equity markets were overvalued or nearing that point. Powell replied that the Fed does not judge individual asset prices as “wrong.” Its role is to assess the stability of the entire financial system and its resilience to shocks. Banks remained well capitalized, and household balance sheets in aggregate were solid, with manageable debt levels. Stress was visible at the lower-income end—especially in subprime auto defaults—but not broadly systemic. Leverage in the banking and financial sectors was not excessive. The picture was mixed, not alarming, and setting asset prices was the market's job, not the Fed's.

McKee pressed further: by cutting rates, the Fed was clearly contributing to higher asset prices. How did Powell reconcile that to support the labor market, when lower rates seemed more likely to fuel AI investment—the very reason thousands of job cuts had been announced recently? Powell pushed back on the premise. AI data-center investment, he argued, was not meaningfully sensitive to 25 or 50 basis points. The economics were driven by long-term productivity gains and high expected returns, not short-term borrowing costs. The Fed's mandate was dual: maximum employment and price stability. Rate cuts supported aggregate demand and, over time, hiring. While inflation remained above target and its path was uncertain, the Committee was proceeding cautiously. No single cut was decisive, but the cumulative effect of easier policy would bolster labor demand without being derailed by AI-specific dynamics.

Potential AI bubble and 1990s dot-com bubble

Powell distinguished the two periods sharply. Today’s leading AI firms, he said, had real earnings, cash flows, and viable business models—unlike the idea-driven companies of the late 1990s, where a clear bubble had formed. AI infrastructure spending was indeed a significant growth driver, but consumer spending remained far larger and more resilient, defying pessimistic forecasts throughout the year. While higher-income households might be carrying more of the load, aggregate consumption dwarfed AI capex in both level and economic weight.

If consumer spending was so robust, why was the labor market cooling?

Powell returned to the supply-side shock. A steep drop in labor force growth—driven primarily by reduced immigration and, to a lesser extent, lower participation—had shrunk the pool of new workers entering the job market. With fewer people to employ, net job creation naturally slowed. Demand had also softened, pushing unemployment slightly higher as the decline in demand outpaced the fall in supply. Overall growth had moderated from 2.4 percent in 2024 to around 1.6 percent this year, though the government shutdown had shaved a few tenths off the third-quarter figure—a drag that would reverse once operations resumed. The economy, he concluded, was still expanding at a moderate pace.

How did the data drought from the government shutdown shape the Fed's approach to policy trajectory and an inclination to stick to September dot-plots (three rate cuts Sep-Dec'25) or a cautious approach?

Powell said the answer would reveal itself only if the problem persisted into December. Both sides would likely argue: one urging a pause because visibility was poor, the other noting that the economy appeared solid and unchanged—so why deviate? He hoped official data would resume in time, but if not, the Committee would still do its job.

On Bank capital requirement:

Powell had said the overall level in the system was “about right.” With a revised Basel proposal and possible changes to the GSIB surcharge under discussion, had that view shifted, and was the Fed planning a significant reduction? Powell declined to get ahead of inter-agency talks, which he said were just beginning. He stood by his 2020 assessment and noted that capital had increased substantially since then through various channels. Until a concrete plan emerged, he had little more to add.

Whether labor-market weakness is accelerating and who would be most at risk if rate cuts failed to stem a further slowdown?

Powell said no acceleration was evident. Without the September payroll report, the Fed relied on state-level unemployment-insurance claims, which showed no uptick, and Indeed job-opening data, which had been flat for four weeks. Aggregate layoff numbers were unchanged. Corporate announcements of hiring freezes or AI-driven reductions were notable, but they had not yet translated into broader deterioration. Job creation was very low, and the job-finding rate for the unemployed remained depressed, yet the unemployment rate at 4.3 percent was still historically low.

When cutting rates, was the Fed specifically thinking of lower-income workers or those vulnerable to automation?

Powell explained that monetary policy could not target any demographic or income group. A sustained period of strong labor-market conditions, as seen in the late stages of the post-financial-crisis expansion, disproportionately benefited lower-wage workers through wage gains and demographic improvements. The current environment was not that tight, but a healthier overall job market remained the best way to help the public—alongside stable prices, which protected fixed-income households from inflation’s bite. Both goals, he stressed, were half of the Fed’s mandate.

On Five-year terms, the twelve Federal Reserve Bank presidents expire at the end of February:

Powell described it as a statutory process that occurs every five years for every president. The Board was already in the middle of it, he said, and would complete it on schedule. That was all he could offer.

Whether growing split in FOMC is complicating Powell’s role as Fed Chair:

Powell rejected the premise. The current environment—4.3 percent unemployment, near-2 percent growth—was fundamentally solid. The challenge lay in balancing upside inflation risks against downside employment risks with a single tool. One goal called for lower rates, the other for higher; the Committee had to choose. A range of views on pace and timing was therefore expected and entirely reasonable. Every participant, he said, took the job seriously and aimed to serve the public, even if they differed on execution. Leading such a group was an honor, not a burden. The Fed had navigated the year carefully—neither ignoring inflation nor overreacting to it. Since April, the risk of persistent high inflation had fallen markedly. The goal remained clear: end the cycle with a healthy labor market and inflation at or approaching 2 percent, under difficult real-time conditions.

On rising subprime auto-loan delinquencies, with losses now hitting both regional and large banks:

Powell acknowledged the trend: subprime defaults had been climbing for some time, and losses were now appearing on bank balance sheets. The Fed was monitoring credit conditions closely, but at present, it saw no evidence of a systemic issue. The problem remained contained, not broadly applicable across institutions, though vigilance would continue.

On the bifurcated economy—high-net-worth individuals still spending, lower-income households pulling back—and how much ongoing consumption depended on a strong stock market:

Powell agreed there was a link, but emphasized diminishing marginal propensity to consume as wealth rises. A sharp market drop would reduce spending, yet the effect would be muted at the top end of the wealth spectrum. Lower-income households, with a higher propensity to spend incremental dollars, held little equity wealth. Thus, while the market provided some support to consumption, it was not a make-or-break factor; a material correction would dent spending but not halt it dollar-for-dollar.

Analysis of Fed Chair Powell’s FOMC Press Conference – October 29, 2025: Hawkish Hold Stance for December’25

Chair Jerome Powell delivered a nuanced, cautiously balanced message that reflected a Federal Reserve at a pivotal inflection point: easing policy amid solid growth and cooling labor markets, while guarding against re-accelerating inflation—especially from tariffs—and navigating unprecedented data uncertainty due to a government shutdown. The tone was deliberate, data-dependent, and notably less dovish than markets had anticipated, pushing back firmly against expectations of a pre-committed December cut.

Core Policy Stance: Gradual, Risk-Managed Easing: “We have one tool and two goals pulling in opposite directions. We must balance them.”

Powell framed the 25 bps cut EACH IN September and October and the end of QT from December as risk-management adjustments, not the start of aggressive easing cycle: The Fed has now cut 150 bps since July, moving from a “modestly restrictive” stance into the neutral rate range (3–4%); i.e. 1% above average core CPI inflation rate.

·         This was insurance against rising downside risks to employment, which had increased since summer revisions showed weaker job growth. 

·         However, inflation risks remain tilted upward, particularly from tariffs, which Powell described as likely causing a one-time price-level shift (adding ~0.2–0.4% to PCE), but with risk of persistence if expectations are unanchored or the labor force stays tight.

December Cut Probability:

·         Not a Foregone Conclusion — Far From It

·         If you’re driving in fog, you slow down. Uncertainty could justify caution

·         Strong internal divisions existed: some favored a pause (already near neutral, growth upgraded); others wanted to continue (labor risks). 

·         No preset path. December depends on incoming data, outlook, and balance of risks. 

·         Data blackout from the government shutdown adds fog

Labor Market: Supply Shock + Gradual Cooling

Powell offered a supply-side explanation for labor weakness: 

·         Sharp drop in labor force growth

·         Immigration (policy-driven, began prior admin, accelerated) 

·         Participation (partly cyclical) 

·         Demand also softened, pushing unemployment up slightly as demand fell more than supply

·         Job creation near zero (BLS-adjusted) → not sustainable for maximum employment

·         AI layoffs announced but not yet in claims data → watching closely

·         Rate cuts support demand to prevent further deterioration, even if supply issues are dominant

Balance Sheet:

·         End of QT, Shift to Neutral

·         $2.2T shrunk (35% → 21% of nominal GDP) 

·         Reserve scarcity signals triggered a decision

·         Higher repo rates, Fed funds vs. IORB spread, ↑ standing repo use 

Late 2019 REPO RATE surge again happening; Fed will start backdoor QE soon (MBS matured> refill with USTs)

Dec 1 balance sheet rejig (adjustment) plan:  Quashi QE

·         Freeze size 

·         Reinvest matured MBS to T-bills (shorter duration, more Treasury-heavy) 

·         Reserves will shrink briefly (currency growth), then modest reinvestment in 2026 

·         Not QE — just maintaining “ample” reserves

AI Boom: Growth Driver, Not Bubble (Yet)

·         Not interest-sensitive: Data center capex driven by long-run productivity bets by cash-rich techs, not by borrowings

·         Unlike the 1990s, Today's leaders have earnings, strong cash flow, profits, and no idea bubble.

·         Job displacement: Corporate announcements are real, but the aggregate impact is not yet visible

·         Rate cuts support broad demand, not AI-specific investment.

Financial Stability: Contained Risks

·         Subprime auto delinquencies rising - losses at banks 

·         Contained: No broad credit stress 

·         K-shaped economy (growth)-Lower-income: pulling back, trading down; High-income/wealth: still spending 

·         Stock market wealth effect: Supports consumption, but marginal propensity declines with wealth- not make-or-break

Fed Chair Powell signaled the end of reflexive easing. The Fed has taken out insurance against labor weakness but is not on autopilot. With policy near neutral, data—especially on inflation pass-through and labor stability—will dictate the next move: “We want to land this cycle with the labor market in a good place and inflation at 2% — under challenging circumstances, doing the best we can.”

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 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 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.

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.

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.