Federal Reserve Cuts Interest Rates Again but Signals Uncertainty for December

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The Federal Reserve has made another big move in the economy by cutting interest rates for the second time in a row. However, Fed Chair Jerome Powell surprised markets by saying it’s not certain whether another cut will come in December.

Federal Reserve Cuts Interest Rates Again but Signals Uncertainty for December

Fed Cuts Rates to 3.75%–4%

On Wednesday, the Federal Open Market Committee (FOMC) voted 10-2 to lower the main interest rate to a range of 3.75%–4%. This rate affects many everyday financial products, including credit cards, home loans, and car loans.

The Fed also announced that it will end its balance sheet reduction program, known as quantitative tightening (QT), on December 1. This means the central bank will stop shrinking its massive $6.6 trillion portfolio of bonds and mortgage-backed securities.

Disagreements Within the Fed

Not everyone agreed with the decision. Governor Stephen Miran wanted a larger half-point cut, while Kansas City Fed President Jeffrey Schmid thought the Fed should not cut rates at all. Both expressed their disagreement through dissenting votes.

Uncertainty About December

At the September meeting, Fed officials had suggested they expected three total rate cuts in 2025, but Powell now says nothing is guaranteed.

“In the committee’s discussions at this meeting, there were strongly differing views about how to proceed in December,” Powell said. “A further reduction in the policy rate at the December meeting is not a foregone conclusion.”

After his comments, investors lowered their expectations for a December rate cut from 90% to 67%, according to the CME Group’s FedWatch tool.

Markets React to Powell’s Comments

Stocks initially went up after the rate cut announcement but later fell when Powell spoke about the uncertain outlook. By the end of the day, markets recovered slightly, though trading remained cautious.

Economic Data Still Missing

The Fed made this decision despite having limited new economic data due to a government data shutdown. Only last week’s Consumer Price Index (CPI) report was available, showing inflation rising 3% year over year, mainly because of higher energy prices and tariff-related costs.

Because of missing data, the Fed said it’s harder to clearly understand how the economy is performing. Their statement noted:

  • The economy is growing at a moderate pace.

  • Job growth has slowed, but unemployment remains low.

  • Inflation is still somewhat high.

Balancing Jobs and Inflation

The Fed aims to balance full employment and stable prices, but recent signs show that job growth is slowing while inflation remains above the 2% target. Powell and other officials are now more cautious about cutting rates too quickly.

End of Quantitative Tightening

The Fed confirmed it will stop shrinking its balance sheet by December 1. Since 2022, QT has reduced the central bank’s holdings by about $2.3 trillion. The Fed said it will start rolling over maturing mortgage bonds into shorter-term Treasury bills to maintain market stability.

Analysts, including Krishna Guha from Evercore ISI, believe the Fed could even restart bond purchases in 2026 if financial conditions change.

What This Means for Consumers

For everyday Americans, this rate cut may bring lower borrowing costs for things like mortgages, auto loans, and credit cards. However, savings accounts may also earn slightly less interest.

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