Fed cuts rates by 25 basis points as expected, markets see Powell’s cautious stance on expectations of December cut as hawkish

The US Federal Reserve, in its October policy meeting, cut interest rates by 25 basis points to 3.75% – 4.00% range, as widely expected.

The policymakers voted 10-2 to lower policy rate, aiming to ease pressure on weakening labor market, with decisions being made in the situation when the central bank lacks key economic data due to prolonged government shutdown, with one of two dissents suggesting deeper cuts and the other voting for no change in the policy, as inflation remains elevated.

Fed also announced it will restart limited purchases of Treasury securities after money markets showed signs that liquidity was becoming scarce, a condition the policymakers try to avoid.

The Fed Chair Jerome Powell, in the following press conference, pointed to strongly differing views about how to proceed in December, adding that further reduction in the policy rate at the last meeting in 2025 is not a foregone conclusion, stressing that policy is not on a preset course.

Markets saw Powell’s remarks as hawkish that lifted the dollar and pressured its major counterparts, stock indices edged lower in the fresh wave of risk aversion, while gold price fell back below $4000 after the Fed decision, weighed by stronger dollar.