US Fed Rate Cut Highlights: Federal Reserve cuts key rate as government shutdown clouds economic outlook

Gold prices pared gains as markets digested comments from U.S. Federal Reserve Chair Jerome Powell regarding the future policy path, despite the central bank cutting interest rates by a widely expected quarter percentage point. Read More

The Federal Reserve on Wednesday said it will stop shrinking its Treasury holdings beginning Dec. 1, ending a three-year long effort after stress signals in money markets intensified in recent days. Read More

Jerome Powell: We’re at a place now where we have, in fact, cut two more times ... we’re 150 basis points closer to neutral, wherever that may be, than we were a year ago. There’s a growing chorus now of feeling like maybe this is where we should at least wait a cycle, something like that.

Jerome Powell was asked about the impact of AI on the labor pool, especially in light of recent layoffs that were attributed to the new technology.

He said: "You see a significant number of companies either announcing that they are not going to be doing much hiring or actually doing layoffs and much of the time they're talking about AI and what it can do. So, we're watching that very carefully."

Still, he added later, consumer spending is a much bigger part of the economy than AI.

Jerome Powell: We do not see the weakness in the job marketing accelerating. 
Then again, we don't didn't get the September payroll report.

Jerome Powell: You don't see it in the aggregate numbers, the layoff numbers have not gone up, but job creation is very low.

Jerome Powell: In the 90s and the dotcom era, they were these were ideas rather than companies, and you know, So there's a clear bubble there. Today, these AI companies have actual earnings.

"Inflation away from tariffs is actually not so far from our 2% goal," Powell said.

While people have "different estimates" of how tariffs are impacting inflation, he added the impact "might be, you know, 5 or 6 tenths," referring to tens of a percentage point.

So, if inflation now is 2.8%, he said, without tariffs it might be "2.3 or 2.4 in that range."

Jerome Powell: Job creation, if you adjust for likely overcounting, is pretty close to zero.

Jerome Powell: The basic expectation is that there will be some additional increase in inflation, because it takes a while for tariffs to work their way through the production chain. And finally get to consumers.

Jerome Powell: And we see this now from the tariffs that were put in place, now many months ago , we see those effects, but if you put tariffs in effect, then there's been coming into effect consistently in, you, February, March, April, May, and that's all happening. So that'll continue to happen for some time, probably into the spring.

Jerome Powell: I think two things are affecting the job market, and one of them is just a dramatic reduction in the supply of new workers. So and that's two things. That's declining labour force participation, which is a cyclical thing, and then there's declining immigration, which is just a big policy change that actually began in the last administration, and it has been accelerated now.

Jerome Powell: We may get the data may come back, but there's a possibility that it would make sense to be more cautious about moving. I'm not committing to that. I'm just saying it's certainly a possibility.

Jerome Powell: I don't think we'll be able to have the very granular understanding of the economy while this data is not available.

Jerome Powell: we're going to do our jobs. We're going to collect every scrap of data we can find, evaluated, and think carefully about it. And that's our jobs.

Jerome Powell: We think policy is still modestly restrictive, in my telling, so that's the kind of thing that should lead to a gradually cooling economy. That's one of the reasons you see gradually cooling labour market.

Jerome Powell: I don't think that the spending that happens to build data centres all over the country is, especially interest sensitive.

Jerome Powell:It's longer run assessments that this is an area where there's going to be a lot of investment and that's going to drive higher productivity, and that sorts of things. I don't know how those investments will work out, but I don't think they're particularly interest sensitive compared to some of the other sectors.

Jerome Powell: The thing about tariff inflation is the base case is that it will come and it probably will increase further, but it is that it will be a one time increase.

Jerome Powell: And, you know, we've been very focussed for all of this year at making sure that that's the case and thinking carefully about what are the what are the pathways through which it could become something else, troublesome inflation? One of those would be, you know, a really tight labour market. We don't see that.

Jerome Powell: I know there could be inflation expectations moving, we don't see that. So I think, you know, we're watching this very carefully.

Jerome Powell: We understand fully this is a risk we have to monitor and ultimately manage

The 10-year yield is now up 6.2 basis points at 4.041%.

Jerome Powell: Forecasters have raised their economic growth forecasts for this year and next year, in some cases quite materially.

Jerome Powell: In the meantime, we see a labour market that's kind of, I don't want to say stable, but it’s not clearly in motion.

Jerome Powell : If you were to see data that suggested that the labour market strengthening, or even that it's stabilising, you, that would certainly play into our decisions going forward.

Jerome Powell: December's, the meeting's like six weeks away. We just don't know what we're going to get. If there is a very high level of uncertainty, then, you know, that could be an argument in favour of caution about moving, but we'll have to see how it unfolds.

S&P 500 sinks half a percent, Dow Jones down 0.3 percent, and the tech-heavy Nasdaq erases gains as Federal Reserve Chair Jerome Powell reiterates that a rate cut in December is not a "forgone conclusion."

Jerome Powell: We haven't made a decision about December, and, you know, we're going to be looking at the data that we have, how that affects the outlook and the balance of risks.

Jerome Powell: After the July meeting, we saw a very different picture of the labour market and suggested that there were higher downside risks to the labour market than we had thought. that suggested that policy, which we had been holding at a, I would say, modestly, others people would say moderately restrictive level, needed to move more in the direction over time of neutral.

Jerome Powell: A further reduction in the policy rate at the December meeting is not a foregone conclusion, far from it.

Jerome Powell: In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December.

Jerome Powell: In December, we'll enter the next phase of our normalisation plans by holding the size of our balance sheet steady for a time, while reserve balances continue to move gradually lower, as other non-reserve liabilities, such as currency, keep growing

Jerome Powell: In the labour market, the unemployment rate remained relatively low through August. Job gains have slowed significantly since early and in the year. A good part of the slowing likely reflects a decline in the growth of the labour force due to lower immigration and labour force participation, though labour demand has clearly softened as well

Jerome Powell: Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low

Jerome Powell: Inflation has reduced significantly from its highs in mid 2022, but remains somewhat elevated relative to our 2% longer goal.

Jerome Powell: Estimates based on the consumer pric index suggests that total PCE prices rose 2.8% over the 12 months ending in September, and that excluding the volatile food and energy categories core PCE prices rose 2.8% as well. These readings are higher than earlier in the year, as inflation for goods has picked up.

Jerome Powell: Higher tariffs are pushing up prices in some categories of goods, resulting in higher overall inflation.

Jerome Powell: Although some important federal government data have been delayed due to the shutdown, the public and private sector data that have remained available suggests that the outlook for employment and inflation has not changed much since our meeting in September.

Jerome Powell: Conditions in the labour market appeared to be gradually cooling, and inflation remains somewhat elevated.

Jerome Powell: We also decided to conclude the reduction of our aggregate securities holdings as of December 1.

Jerome Powell: Available indicators suggest that economic activity has been expanding at a moderate pace. GDP arose at a 1.6% pace in the first half of a year, down from 2.4% last year. Data available prior to the shutdown showed that the growth in economic activity may be on somewhat firmer trajectory than expected.

Jerome Powell: The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends .

U.S. Treasury yields extended their rise after the Fed cut interest rates and announced it will restart limited purchases of Treasury securities.

The benchmark 10-year Treasury yield was up 3.5 basis points at 4.018%, while the two-year yield, which reflects interest rate expectations, rose 3 bps to 3.524.

The Federal Reserve said policymakers voted 10–2 in favor of lowering the benchmark lending rate to a range of 3.75% to 4.00%.

According to the statement, Fed Governor Stephen Miran dissented, favoring a larger half-point rate cut, while Kansas City Fed President Jeff Schmid preferred to keep rates unchanged at the current level.

Following the Federal Reserve's October rate cut, traders continue to bet on further easing of monetary policy. Although prices for short-term interest-rate futures saw a slight decline after the announcement, the overwhelming market expectation remains focused on another quarter-point rate cut in December, with additional cuts also being priced in for March.

The S&P 500 was last up 0.25% after the Fed's statement.

Inflation has moved up since earlier in the year and remains somewhat elevated

Uncertainty about the economic outlook remains elevated

Downside risks to employment have risen

"Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months.

In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee decided to conclude the reduction of its aggregate securities holdings on December 1. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments."

Available indicators suggest economic activity is expanding at a moderate pace. Meanwhile, job gains have slowed this year and the unemployment rate has edged up but remained low through August, the Fed said.

Fed Governor Stephen Miran and Kansas City Fed President Jeffrey Schmid dissented.

The U.S. central bank reduced its benchmark policy rate to the 3.75%-4.00% range.

U.S. stocks climbed on Fed day as Nvidia’s market value surged past $5 trillion, fueling a renewed rally in technology shares. Investors brushed aside concerns over stretched tech valuations, with optimism about another potential Federal Reserve rate cut boosting confidence in corporate earnings.

The rebound in tech pushed the S&P 500 higher for a fifth consecutive session, putting the index on course for its longest monthly winning streak since 2021. While some analysts have cautioned about the market’s narrow breadth, sustained enthusiasm around artificial intelligence continued to propel major tech stocks and the broader market upward.

Despite the U.S. labor market remaining in a state of "low-hiring, low-firing doldrums" through September, Fed Chair Powell noted on October 14 that the economy "may be on a somewhat firmer trajectory than expected."

Powell highlighted the deep economic dilemma facing the central bank, with officials split between those primarily concerned about "still-high and potentially rising inflation" and those worried about a "fast slide downward" in the labor market.

He affirmed that the Fed will use a "meeting-by-meeting" approach to potential interest rate cuts as they navigate this tension. A "newly added complication" is that recent economic activity data has been stronger than anticipated, yet this strength "hasn't yet translated into renewed hiring strength." Powell summarized the puzzle by stating: "You do have a bit of tension between labor market data - we see very low levels of job creation - and yet people are spending. We are going to have to see how that plays out."

Official data from the Bureau of Labor Statistics are largely suspended during the government shutdown.

The Consumer Price Index report for September was delayed and published on Friday just ahead of the Fed meeting.

Earlier this month, Powell said he felt there was adequate insight for the Fed's October meeting, but that "we'll start to miss that data, particularly October data," if the shutdown persists.

But for the time being, Powell said, there is a broad-enough array of public and private information to make a policy judgment.

Last week, the White House also said there likely will not be a release of inflation data next month due to the government shutdown.

"Surveyors cannot deploy to the field — depriving us of critical data," the White House said on its official Twitter account.

"The economic consequences could be devastating."

Federal Reserve officials affirm they are not hampered by the lack of government data, as they are actively monitoring a variety of information, including reports from the private sector. Additionally, the central bank may announce on Wednesday that it will stop reducing its vast holdings of securities (which were built up following the 2008-2009 recession and the pandemic). This halt in the reduction process could gradually lead to a slight decrease in longer-term interest rates, such as those for mortgages, although it is not expected to significantly change overall consumer borrowing costs.

Investors are set to closely monitor Federal Reserve Chair Jerome Powell’s remarks after the policy announcement for clues on the future trajectory of interest rates and potential adjustments to the Fed’s quantitative tightening (QT) program.

Treasuries edged lower ahead of a widely expected interest-rate cut by the Federal Reserve with traders focused on comments by Chair Jerome Powell for clues on the central bank’s next move.

Yields on 10-year notes rose two basis points to 3.99% after falling the previous two sessions, while monetary policy-sensitive two-year notes moved one basis point higher to 3.50% Wednesday.

Traders have fully priced a quarter-point rate reduction when the Fed announces its decision at 2pm in Washington, with another likely in December. But they will be focused on Powell’s remarks to determine their next move at a time when US policymakers have grown increasingly divided on the outlook for interest rates.

US stocks climbed toward fresh record highs on Wednesday as investors awaited the Federal Reserve’s policy announcement on interest rates later in the day.

At midday, the S&P 500 was up 0.2%, while the Dow Jones Industrial Average gained 263 points, or 0.6%, and the Nasdaq Composite rose 0.5%. All three major indexes were extending their momentum after closing at record highs in the previous session.

Gold prices rose nearly 2% on Wednesday, rebounding from a three-week low hit in the previous session as some traders covered short positions ahead of a pivotal Federal Reserve rate decision later in the day.

Spot gold was up 1.4% at $4,007.47 per ounce, as of 9:45 a.m. ET (1345 GMT), after dropping to its lowest since October 6 on Tuesday.

Stock markets hit record highs Wednesday thanks to optimism over US trade deals, the AI sector and an expected interest-rate cut by the US Federal Reserve.

On Wall Street both the S&P 500 and Nasdaq Composite set record highs as trading started, following fresh peaks set in London and some Asian markets as US President Donald Trump voiced optimism on the eve of crunch talks with China's President Xi Jinping.

Investors are looking ahead to a meeting of the Federal Reserve, which observers expect will unveil a quarter-percentage-point cut to borrowing costs, as well as earnings reports from tech heavyweights Meta, Microsoft and Google-parent Alphabet after trading closes in New York.

Major brokerages expect the U.S. Federal Reserve to deliver 25-basis-point interest rate cuts at each of its two remaining monetary policy meetings this year, following the widely anticipated quarter-point reduction in September.

BofA Global Research is the only major brokerage forecasting a single rate cut from the U.S. central bank this year.

While Federal Reserve officials currently view the labor market as generally balanced (demand for workers roughly equals supply), they are increasingly worried that economic growth concerns could prompt businesses to reduce hiring further or even resort to layoffs. This risk is underscored by recent actions, such as layoff announcements from companies like Amazon.com and a documented uptick in state unemployment claims. The weekly data on state unemployment applications is therefore being closely watched as a key barometer for the labor market's health.

AI chip juggernaut Nvidia became the world's first $5 trillion company on Wednesday, as investors remain confident that artificial intelligence will deliver a new wave of innovation and growth.

The California-based company saw its share price rise by 4.91 percent to $210.90 at the open of trading on Wall Street, pushing Nvidia's market capitalization past the never-before-seen threshold.

The Federal Reserve operates with a dual mandate to manage both inflation and unemployment independently. To meet these goals, the Fed either raises, pauses, or cuts its key lending rate. Lowering the rate is meant to stimulate the economy and the job market, often resulting in lower borrowing costs like mortgage rates. Conversely, raising rates is used to slow economic activity and control rising prices by dampening inflation.

Analysts and traders expect most policymakers on the Fed's rate-setting committee will back a quarter percentage-point cut, which would lower the bank's benchmark lending rate to between 3.75 percent and 4.00 percent.

European stocks edged higher and Wall Street futures were at new record highs on Wednesday ahead of earnings announcements from major U.S. tech companies and a U.S. Federal Reserve meeting that is expected to deliver a 25-basis-point rate cut.

Wall Street closed at a record high on Tuesday after Nvidia announced it would build seven supercomputers for the U.S. Department of Energy, and after Microsoft reached a deal allowing OpenAI to restructure.

The lack of fresh economic data poses new challenges for the Federal Reserve as it continues to navigate a slowing economy. With policymakers expected to maintain their rate-cutting path to support growth and employment, the absence of key indicators leaves the Fed partially in the dark. Officials had previously hinted at additional rate cuts in October and December, and markets now view a December reduction as almost inevitable.

The ongoing government shutdown has disrupted the flow of crucial economic data that the Federal Reserve depends on to monitor employment, inflation, and overall economic performance. The September jobs report, initially scheduled for release three weeks ago, remains on hold. The upcoming hiring data for October, expected on November 7, is also likely to face delays and may be less detailed once published. Furthermore, the White House has indicated that the October inflation report might not be released at all.