Not a forgone conclusion

The Fed concluded its two-day meeting on October yesterday, with the expected 25 basis point cut to the federal funds rate, bringing the target range to 3.75%–4.00%. the highlights of Powell comments were: (1) Job gains have slowed, with unemployment holding steady but risks to employment increasing. (2) Inflation has eased but remains somewhat elevated, with recent CPI data showing a rise to 3% year-over-year in September (up from 2.9% in August). (3) Balance Sheet Policy: The Fed will halt reductions in its asset holdings starting December 1, ending the balance sheet runoff (quantitative tightening) initiated earlier in the year. Powell emphasized this as a technical pause, not a shift to easing, to maintain ample reserves in the banking system. During the press conference, Powell repeatedly stressed that a further cut in December is “not a foregone conclusion—far from it.” He disclosed “strongly differing views” among FOMC members during discussions, with some advocating for a pause due to sticky inflation and others pushing for continued support amid labor risks. The equity market dipped on the news but recovered by the end of the session, and futures are flat this morning. Bond yields have ticked up, but not meaningfully enough to be worth mentioning. Fed fund futures did move and now discount a dem ever cut with 66% probability, vs a 98% prior to the meeting. Since the Fed is not receiving data from the BLS, they will need to be creative to justify their decisions, one way or another. Next stop, December 10.

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