Flying blind and despite rising inflation.
By Wolf Richter for WOLF STREET.
The FOMC voted today to cut the Fed’s five policy rates by another 25 basis points, after cutting by 25 basis points in September, and by 100 basis points in 2024.
The “data-dependent” Fed made this decision based on a lack of data due to the government shutdown, and what little data it got, showed further accelerating inflation. And the statement today acknowledged that.
The FOMC cut its five policy rates:
- Target range for the federal funds rate to 3.75%-4.0%.
- Interest it pays the banks on reserves: 3.9%.
- Interest it pays on overnight Reverse Repos (ON RRPs): 3.75%
- Interest it charges on overnight Repos at its Standing Repo Facility (SRF): 4.0%.
- Interest it charges banks to borrow at the “Discount Window” at 4.0%.
QT will end on December 1, according to the statement. The Fed has already shed $2.4 trillion in assets since QT began in July 2022.
But MBS will continue to roll off the balance sheet at full speed, and the proceeds will be reinvested in Treasury bills, according to the Implementation Notes.
During the press conference, Powell confirmed that the balance sheet would remain flat for a while, and as non-reserve liabilities, such as currency in circulation will to continue to rise, reserves will continue to shrink, a soft form of QT, which he pointed out.
There were 2 dissents, but in opposite directions:
Governor Stephen Miran voted against the 25-basis point cut; he wanted a 50-basis point cut.
Jeffrey Schmid, President of the Kansas City Fed, voted against the cut; he wanted no cut.
What changed in the FOMC’s statement:
The Statement acknowledges the lack of data.
New: “Available indicators suggest that economic activity has been expanding at a moderate pace.”
Old: “Recent indicators suggest that growth of economic activity moderated in the first half of the year.”
New: “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.”
Old: “Job gains have slowed, and the unemployment rate has edged up but remains low.”
New: “Inflation has moved up since earlier in the year and remains somewhat elevated.”
Old: “Inflation has moved up and remains somewhat elevated.”
New: “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.”
Old: “The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen.”
New: “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.”
Old: “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 4 to 4‑1/4 percent.”
New, the end of QT: “The Committee decided to conclude the reduction of its aggregate securities holdings on December 1.”
Old: “The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.”
This was a no-dot-plot meeting – one of the four a year when the FOMC does not release a “Summary of Economic Projections,” which includes the “dot plot” that indicates how each FOMC member that day sees the development of future policy rates, inflation, GDP growth, and unemployment. The FOMC will release the next Summary of Economic Projections at the December meeting.
The whole statement:
“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.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Alberto G. Musalem; and Christopher J. Waller. Voting against this action were Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/2 percentage point at this meeting, and Jeffrey R. Schmid, who preferred no change to the target range for the federal funds rate at this meeting.”
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Cool, I want FED’s Doc brown time machine too so I can go back beyond 2024 and maybe back to great depression peiod and see how things all played out..lol
“after cutting by 25 basis points in September, and by 100 basis points in 2024”
MBS QT into Tbills. Isn’t this QE or at least similar to Operation Twist?
Opposite. This converts long-term security holdings to short-term holdings. It’s a REVERSE operating twist.
I assume this is to keep the govt lights on since the deficit is almost entirely funded with short term T-Bill debt.
There aren’t enough T-bills out there now for the Fed to replace its $2.1 trillion MBS with T-bills. The $6.4 trillion in T-bills that are out there now are spoken for; so the government will have to issue $2 trillion more in T-bills so that the Fed can replace its MBS with T-bills, and the market will have to absorb $2.1 trillion in MBS over time. This will spread out over years.
Yup. Will only add fuel to the fire for those who want GSEs to buy MBS, a bad idea whose time has come.
Wolf,
JPOW said that he is noticing disinflation in services. He said it out loud during his written remark. Everything you have published here is screaming we have inflation in services? Can you comment?
He is still talking about it as I’m writing this. But your question refers to what he said a few minutes ago, that disinflation is in the housing part of services, and yes, housing inflation has come down a lot, and then stopped coming down, and then we had that outlier drop in OER:
https://wolfstreet.com/2025/10/24/massive-outlier-in-owners-equivalent-of-rent-pushed-down-cpi-core-cpi-core-services-cpi-something-went-awry-at-the-bls/
Wolf,
I hope someone asks JPOW question about OER outlier and its impact on latest CPI? Lets see if media is going to do what they are supposed to do and ask right questions.
Ending QT feels quite premature (even though I know the Fed has worked off far more from it balance sheet than some expected years ago). The resurrected standing repo facility has been working just fine, and there are even surplus funds in the ONRPP. Perhaps we are just barely barely reaching the edge of “ample” but why not push a bit further to force a bit of capital reallocation instead of keeping a bloated balance sheet.
10-year Treasury yield spikes by 8 basis points so far, pretty strong reaction to something.
If this continues and hold, that date the rape and marry house narrative is looking more and more hilarious by the day. Can we please get 30yrs back above 7% again please?
Too bad with this rate cut, we’re moving another step closer to TINA environment for savers again…better plow all your money into Crypto and meme stock now /s
Maybe the fact that the fed has clearly abandoned their inflation target.
Powell is getting squeamish about future rate cuts. Maybe the current level is about right and we may be should “wait a cycle,” he said, and that this would come out in the minutes.
I smell a rat. You get inflation, they get a new half billion dollar ballroom, where they can eat caviar and laugh at how pitiful your life has become. They’re going to Weimar it. That has always been the path.
This just doesn’t seem right with inflation increasing and unemployment still pretty low.
But what do I know? Full steam ahead, let’s keep the party going!
It’s transitory just give them another 54 consecutive months.
The Fed should not be raising or lowering interest rates when key data are unavailable.
It’s nice to see Treasury note and bond yields skyrocketing. The bond market has no confidence in the Fed’s so-called intention to control inflation. As of right now the 10 year is up 77 basis points, 20 year up 59 basis points, and the 30 year is up 55 basis points. The biggest jump is in the 2 year, up a whopping 108 basis points, from 3.494 to 3.602. It’s a big FU to the Fed.
I think that’s up 7.7, 5.9, 5.5, and 10.8 basis points respectively.
Yes. Thanks.
Goodbye sub 6% mortgages, we hardly knew ya. VMBS already reacting strongly.
Mild bond push back? 10y trending up.
Methinks the FED will say 2% in notes but really target 3% to help finance the debt. Some bond traders catching on?
When a company cuts jobs at first it cuts the fat but eventually you can cut into muscle. Eventually immigration deportation will be the same, we will be exporting vital consumers. I like what Jay said about immigration controls and equilibrium with the job market for now. The bulls continue to buy the dip, let’s see what happens with China news tomorrow. Maybe, Buy the rumor since April sell the news! If we get news
“…yes, you heard me correctly, we need another thousand-gross cases of your 12oz. cans of ‘Deep Gold’ spray paint, charge it to…hello? Hello?…”.
may we all find a better day.