Federal Reserve Lowers Rates Again, Casts Doubt on Future Cuts
The central bank cut its benchmark rate by a quarter-point but signaled a December move is uncertain, citing a government shutdown and a divided committee.
The Federal Reserve delivered its second consecutive interest rate cut on Wednesday, lowering its benchmark rate by a quarter-point to a range of 3.75% to 4.0%. The move, however, failed to ignite a broad market rally. Instead, Fed Chair Jerome Powell quickly rattled investors by signaling that another cut in December is far from guaranteed.
The decision comes at a precarious time for the U.S. economy. The Fed is navigating a narrow path between a slowing labor market and inflation that remains stubbornly above its 2% target. Compounding the challenge, a month-long federal government shutdown has suspended the release of critical economic data, forcing the central bank to “fly blind” just as its internal divisions deepen.
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Powell’s “Fog of War” Rattles Markets
The real drama began at the post-meeting press conference. Markets, which had been higher after the initial decision, turned sharply lower as Powell spoke. He directly addressed the market’s high expectations for a third cut this year, delivering a clear and hawkish warning.
Powell stated:
“A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”
This comment immediately sent traders scrambling to reprice their bets. The odds of a December cut plunged from over 90% to roughly 67%. The U.S. Dollar Index (DXY), which tracks the greenback against other major currencies, surged 0.5% on the news.
Powell blamed the government shutdown for the new uncertainty. Without key reports on nonfarm payrolls, retail sales, or inflation, the Fed lacks the signposts it needs. “What do you do when you’re driving in the fog? You slow down,” Powell said, adding there was “a possibility” this lack of data would influence the December debate.
The hawkish tilt from the Fed chair pressured assets across the board. Gold (XAUUSD) futures tumbled nearly 1%, dropping back below the $4,000 level to around $3,950 an ounce. Bitcoin (BTCUSD) also retreated from its daily high, trading near $110,400. Meanwhile, West Texas Intermediate (WTI) crude oil futures held onto modest gains, finishing around $60.35 a barrel.
Source: Federal Reserve YouTube
A Divided Committee and an Analyst’s View
The 10-2 vote on the rate cut underscored the deep divisions Powell alluded to. The dissents came from opposite ends of the policy spectrum. Kansas City Fed President Jeffrey Schmid voted against the move, preferring to hold rates steady over inflation concerns. Conversely, Fed Governor Stephen Miran, an appointee of President Donald Trump, dissented for the second straight meeting, arguing for a more aggressive half-point cut.
This internal split confirms that the path forward is contentious. Analysts noted that Powell’s “fog” comment effectively ends the market’s recent complacency.
Gennadiy Goldberg, head of U.S. rates strategy at TD (NYSE: TD) (TSX: TD) Securities, stated:
“Powell poured cold water on the idea that the Fed was on autopilot for a December cut. Instead, they’ll have to wait for economic data to confirm that a rate cut is actually needed.”
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Ending the “Tightening”
Beyond the rate drama, the Fed made another significant policy announcement. The central bank will officially end its quantitative tightening (QT) program on December 1. This program, which has been shrinking the Fed’s massive $6.6 trillion balance sheet, had recently shown signs of causing stress in short-term lending markets.
By ending the balance sheet reduction, the Fed aims to ensure liquidity and stability in the financial system’s critical “plumbing.” This move is separate from the interest rate decision but works to slightly ease financial conditions.
Tech Shines as Nvidia Hits $5 Trillion
While the broader market processed Powell’s new uncertainty, the tech sector charted its own course. The S&P 500 (SPX) finished the day flat, and the Dow Jones Industrial Average (DJI) closed down 0.2%. The tech-heavy Nasdaq Composite (IXIC), however, erased its losses and powered 0.6% higher to a new closing record.
Nvidia (NASDAQ: NVDA) stole the spotlight. The chipmaker’s shares jumped another 3%, making it the first company in history to achieve a $5 trillion market valuation.
Other “Magnificent Seven” stocks showed a mixed picture ahead of crucial earnings. Alphabet (NASDAQ: GOOGL) rose 2.7%, while Meta (NASDAQ: META) finished flat. Microsoft (NASDAQ: MSFT), Apple (NASDAQ: AAPL), and Amazon (NASDAQ: AMZN) all posted slight declines.
The day also revealed sharp divergences in other sectors. Caterpillar (NYSE: CAT) shares soared over 11% to an all-time high after reporting stellar results. In stark contrast, Boeing (NYSE: BA) shares plummeted more than 4% after the planemaker posted a weak profit and a massive $4.9 billion charge related to its 777X certification. In healthcare, Centene (NYSE: CNC) provided a major bright spot, soaring 12% on an unexpected adjusted profit.
Ultimately, the Fed’s decision acknowledged the “downside risks to employment” that have risen in recent months. But Powell’s cautious pivot traps the market in a state of suspense. Investors, and the Fed itself, must now wait, hoping the government reopens soon and provides the clarity everyone needs to navigate the road ahead.
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