Federal Reserve cuts rates and signals end to quantitative tightening
The Federal Reserve delivered its second rate cut of 2025 as expected, taking its policy rate down 25 basis points to a range of 3.75% to 4%. Officials also said they plan to stop reducing the size of their balance sheet as of December 1.
Stocks were little changed in the wake of this announcement.
It’s the first time since 1995 that the US central bank has held one of its meetings during a government shutdown, which has left monetary policymakers with less data than usual to aid in their decision-making processes.
In their statement, monetary policymakers said that the unemployment rate “remained low through August,” adding that “more recent indicators are consistent with these developments.” All in all, this does not necessarily escalating concern about the state of the labor market, given that officials used the past tense to describe how downside risks to employment “rose in recent months.”
Event contracts traded on Robinhood showed a rate cut of this size was a lock for this meeting. Heading into the decision, a separate contract showed that the odds of 75 basis points in easing for 2025 was roughly 83%, implying a strong expectation that another 25 basis point reduction will be delivered at its December meeting. The prediction market implied odds of no more cuts in 2025 or more than 25 basis points in cuts were little changed in the minutes following the release of today’s statement.
(Robinhood Markets Inc. is the parent company of Sherwood Media, an independently operated media company subject to certain legal and regulatory restrictions. Event contracts trading is offered by Robinhood Derivatives, LLC, a registered futures commission merchant with the CFTC.)
“I do wonder if officials will be comfortable cutting rates again on December 10 if they go into that meeting with no official data reflecting activity in October and November,” writes Omair Sharif, president of Inflation Insights. “It may be hard to reach a consensus on another cut, especially given the split in the FOMC indicated in the September dot plot.”
There were two dissents at this meeting, as Kansas City Fed President Jeff Schmid preferred no change, while Fed Governor Stephen Miran wanted a 50 basis point cut.
