Fed cuts rates for the second time this year, will end balance sheet run-off in December
CNBC ^ | October 29, 2025 | Jeff Cox
Posted on 10/29/2025 11:08:06 AM PDT by Red Badger
The Federal Reserve on Wednesday approved its second straight interest rate cut, a widely expected move that came despite little recent visibility on the economy due to the government shutdown.
In addition to the rate move, the Fed announced that it would be ending the reduction of its asset purchases – a process known as quantitative tightening – on Dec 1. By a 10-2 vote, the central bank’s Federal Open Market Committee lowered its benchmark overnight borrowing rate to a range of 3.75%-4%.
Governor Stephen Miran again cast a dissenting vote, preferring the Fed move more quickly with a half-point cut. St. Louis Fed President Jeffrey Schmid joined Miran in dissenting but for the opposite reason – he preferred the Fed not cut at all.
The rate also sets a benchmark for a variety of consumer products such as auto loans, mortgages and credit cards. The reduction came even though the Fed essentially has been flying blind lately on economic data.
Other than the consumer price index release last week, the government has suspended all data collection and reports, meaning such key measures as nonfarm payrolls, retail sales and a plethora of other macro data is unavailable.
In the post meeting statement, the committee acknowledged the uncertainty accompanying the lack of data, qualifying the way it categorized broad economic conditions. “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,” the statement said. “Inflation has moved up since earlier in the year and remains somewhat elevated.”
Each of those characterizations represented tweaks from the September statement. The most significant change was the view on broad economic activity. In September, the FOMC said activity had moderated. The statement reiterated concerns that policymakers have over the labor market, saying that “downside risks to employment rose in recent months.”
Even before the shutdown, evidence had begun to build that while layoffs have been contained, the pace of hiring had flattened. At the same time, inflation has held considerably above the Fed’s 2% annual goal. The CPI report last week, released because of its importance to Social Security cost of living adjustments, showed the annual rate at 3%, pushed by higher energy costs as well as several items with direct or indirect links to President Donald Trump’s tariffs.
The Fed tries to strike a balance between full employment and stable prices. Officials lately, though, have said they see a slightly higher risk posed by the jobs picture. Along with the interest rate decision, the Fed said its process of reducing the amount of bonds it holds on the central bank’s $6.6 trillion balance sheet will end.
The program, also known as QT, had shaved some $2.3 trillion off the Fed’s portfolio of Treasurys and mortgage-backed securities. Instead of reinvesting maturing proceeds from the securities, the Fed has been allowing them to roll off the balance sheet at a limited level each month. However, recent signs of some tightening in short-term lending markets have raised concern that the roll-off has gone far enough.
An implementation note accompanying the decision indicated the Fed will be rolling proceeds from maturing securities into shorter-term bills, thus reducing the duration of its broader portfolio. Previously, the Fed had rolled the proceeds over into securities of the same maturities.
Markets recently had begun anticipating that the Fed would end QT either in October or by the end of the year. The Fed expanded its holdings during the Covid crisis, pushing the balance sheet from just over $4 trillion to close to $9 trillion. Powell has said that while the Fed found it necessary to shrink its holdings, he did not foresee a return to pre-pandemic levels.
In fact, Evercore ISI analyst Krishna Guha said he could foresee a scenario where the Fed actually restarts the purchases early in 2026 for “organic growth purposes” as market conditions shift. The Fed rarely eases monetary policy during economic expansions and bull markets in stocks. Major averages, though volatile, have been posting a series of record highs, boosted by further gains in Big Tech stocks and a robust earnings season.
History has shown that the market continues to rise when the Fed does cut under such circumstances. However, easier policy also poses the risk of higher inflation, a condition that forced the Fed into a series of aggressive rate cuts.
TOPICS: Business/Economy; Government; US: District of Columbia; US: New York
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1 posted on 10/29/2025 11:08:06 AM PDT by Red Badger
To: Red Badger
If they cut rates enough, Trump may let them keep the Fed Governor with the mortgage.
2 posted on 10/29/2025 11:32:48 AM PDT by aynrandfreak (Being a Democrat means never having to say you're sorry)
To: aynrandfreak
3 posted on 10/29/2025 11:44:36 AM PDT by CFW
To: Red Badger
We knew this one was coming. We are still restrictive but moving toward even-handed.
4 posted on 10/29/2025 11:45:03 AM PDT by SaxxonWoods (Annnd....TRUMP IS RIGHT AGAIN.)
To: SaxxonWoods
I’m pleased to see the Fed getting back to QT. IMHO that can have a larger impact on inflation that the interest rate.
5 posted on 10/29/2025 11:47:29 AM PDT by Tell It Right
To: Red Badger
A quarter point cut? Too small it seems?
6 posted on 10/29/2025 11:47:38 AM PDT by Dartoid
To: SaxxonWoods
“Powell sees economic growth ‘somewhat firmer’ than expected
Fed Chair Jerome Powell said what economic data is available shows that economic growth has been surprising to the upside.
“Data available prior to the shutdown show that growth in economic activity may be on a somewhat firmer trajectory than expected, primarily reflecting stronger consumer spending,” the central bank chief said.
The Fed has been hamstrung in assessing economic progress during the recent shutdown as all data collection and releases have been suspended.”
7 posted on 10/29/2025 11:47:38 AM PDT by CFW
To: Dartoid
If they had raised it a quarter point the media would be hyperventilating..................
8 posted on 10/29/2025 11:50:46 AM PDT by Red Badger (Homeless veterans camp in the streets while illegals are put up in 5 Star hotels....................)
To: Tell It Right
Agreed, that was good news.
9 posted on 10/29/2025 12:00:45 PM PDT by SaxxonWoods (Annnd....TRUMP IS RIGHT AGAIN.)
To: CFW
“The Fed has been hamstrung in assessing economic progress during the recent shutdown as all data collection and releases have been suspended.”
There is various data every day from other sources. I don’t buy that the recent reporting cutoff makes any difference. There was one vote against Powell due to a Trumper wanting a .50% cut and one vote against Powell from a person wanting no cut. Everyone else on board with the .25.
10 posted on 10/29/2025 12:05:07 PM PDT by SaxxonWoods (Annnd....TRUMP IS RIGHT AGAIN.)
To: Red Badger
Markets did not respond favorably.
11 posted on 10/29/2025 12:18:15 PM PDT by johniegrad
To: AdmSmith; AnonymousConservative; Arthur Wildfire! March; Berosus; Bockscar; BraveMan; cardinal4; ...
12 posted on 10/29/2025 12:45:14 PM PDT by SunkenCiv (NeverTrumpin' -- it's not just for DNC shills anymore -- oh, wait, yeah it is.)
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