US Fed lowers rates, but its chief suggests move may be the last of 2025

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WASHINGTON: Federal Reserve Chair Jerome Powell on Wednesday ruled out a policy split at the US central bank and a lack of federal government data from reaching another interest rate hike this year, as he acknowledged the risks officials see in the job market but also the dangerous nature of further rate maneuvering without a full picture of the economy.

The Fed cut interest rates by a quarter of a percentage point on Wednesday, as expected, as a way to calm further weakness in the job market. But the central bank’s new policy statement included several references to the lack of official data during the federal government shutdown, and Powell later told reporters that policymakers would be more cautious if it deprived them of more employment and inflation data.

“We can collect every scrap of data we can find, evaluate it and think carefully about it. And that’s our job,” Powell said at a press conference after the two-day policy meeting.

“If you ask me, could it affect … the December meeting, I’m not saying it’s going to, but yeah, you can imagine it. You know, what do you do if you’re driving in the fog? You slow down.”

His comments indicate a developing dilemma for the Fed as the budget standoff between the Trump administration and Democrats in Congress stretches into a second month, with the administration unable to conduct surveys and produce data that are key to central bankers’ policy decisions — in this case, the likely rate cuts that President Donald Trump wants.

Beyond the data issues, Powell said there were “strongly divergent views” among his Fed colleagues about the appropriate path for monetary policy, with “rising courses now … looking like maybe this is where we should wait for at least one cycle”.

Financial markets responded to Powell’s remarks by reducing bets on another rate cut at the Fed’s Dec. 9-10 meeting, now giving the prospect roughly two-to-one odds, with the S&P paring largely flat after earlier giving up gains.

“Powell clearly signaled a pause between this and future meetings,” said Michael Pearce, deputy chief U.S. economist at Oxford Economics, when he manages a policy-setting committee that agreed to successive rate cuts in September and October, even as many of its members are concerned that inflation is expected to rise through the rest of 2025.

Even those who have stressed potential weakness in the job market agree that the Fed should now move cautiously.

Powell said the economy continues to emit mixed signals, with “two-sided” consumers stressed at the low end of the income distribution but strong spenders at the upper end, and economic growth benefiting from business investment even if that is not translating into strong job growth.

The latest rate cut drew disagreements from two policymakers, with Fed Governor Stephen Murran calling for another deep cut in borrowing costs and Kansas City Fed President Jeffrey Schmidt not giving any cuts to ongoing inflation.

It was only the third time since 1990 that policymakers disagreed on different policy directions, according to St. Louis Fed data, a sign of the split at the central bank that presides over the economy.

A ‘solid’ policy decision

Powell still called the Fed’s 10-2 vote in favor of cutting the benchmark interest rate to a range of 3.75%-4.00% a “solid” endorsement of easing policy to support a slowly cooling labor market.

But there were “strongly different views in December about the way forward,” Powell said, an unusually blunt comment about the upcoming meeting, something Fed chiefs typically shy away from.

“A further policy rate cut at the December meeting is not a foregone conclusion. Far from it, policy is not on a preset course,” he said.

Powell said his own view is that the current policy rate is “modestly constrained” and is still putting some downward pressure on inflation, which he said, as a base case, would rise temporarily in the coming months due to the Trump administration’s import tariffs, but then fall.

“I think it’s not appropriate to simply ignore or understate the issue of inflation. At the same time, I think the risk of higher, more persistent inflation has diminished significantly since April,” Powell said, adding that the Fed will resume its rate cuts at some point. “I think we’re in a good place with the labor market and with inflation trying to get to the end of this cycle.

Fed policymakers acknowledged the limitations in their decision-making process posed by the government shutdown, with their unemployment rate being pushed back to August — the last government jobs month — when noting that “available indicators suggest that the economy continued to grow at a moderate pace.

Inflation has not risen as strongly on the back of the White House’s new import taxes as initially expected on the back of the White House’s new import taxes, according to the last official estimate released for the price index of personal consumption expenditures before the shutdown. The Fed uses the PCE to set its 2% inflation target, and in estimates released in September, policymakers expected the rate to rise to 3% by the end of this year.

The Fed also announced on Wednesday that it would resume limited purchases of Treasury securities after signs in money markets that liquidity is running low, a condition it has promised to avoid.

The decision to end the balance sheet deficit would keep the central bank’s total money supply steady at $6.61 trillion on a month-to-month basis through Dec. 1, but would change its portfolio by returning proceeds from maturing mortgage-backed securities to Treasury bills.