Powell Cools Hopes for Another Fed Rate Cut in December

The U.S. Federal Reserve delivered its widely expected rate cut on Wednesday, trimming the benchmark Federal Funds Target Range by 25 basis points to 3.75%–4.00%, but Fed Chair Jerome Powell poured cold water on expectations for another move in December, warning that “another cut is far from assured.”

During his post-meeting press conference, Powell emphasized that policymakers remain cautious as they navigate a complex mix of risks to both inflation and employment. “We face two-sided risks,” he said, noting that the balance of risks has shifted in recent months. While inflation remains somewhat elevated, labor demand has clearly softened, with hiring difficulties easing and job openings declining.

Despite the data blackout caused by the government shutdown earlier this month, Powell said available evidence suggests the broader economic outlook has not changed much since September. The shutdown, he noted, will temporarily weigh on activity but is expected to reverse once it ends. He also stressed that the Fed’s obligation is to prevent inflation from becoming an ongoing problem, even as the central bank seeks to safeguard job growth.

The latest policy statement reflected this balancing act. Officials acknowledged that job gains have slowed and unemployment has edged up but remains historically low. Inflation, meanwhile, has risen modestly since the start of the year and continues to hover above the 2% target. The statement also confirmed that the Fed will end its balance sheet drawdown on December 1, opting instead to reinvest all maturing securities into Treasuries—effectively halting its quantitative tightening program.

The decision to lower rates was not unanimous. Two members dissented, with one favoring a larger half-point cut and another preferring to leave rates unchanged. This division highlights the increasingly uncertain path ahead as the Fed weighs how much more support the economy needs.

Market reaction to the announcement was muted but leaned in favor of the U.S. dollar. The Dollar Index hovered near 98.90, bolstered by a firm performance in Treasury yields. The greenback gained most strongly against the Swiss franc, while the pound and euro also slipped modestly following Powell’s remarks.

In the background, markets had fully priced in this October rate cut and were betting on another in December. However, Powell’s cautious tone effectively reset those expectations. Investors now see the central bank taking a pause to assess how the economy absorbs this latest adjustment amid lingering inflation risks and ongoing uncertainty from fiscal disruptions.

For now, the Fed appears intent on keeping its options open. Powell reaffirmed that policymakers are “well-positioned to respond in a timely way” to future developments, whether that means tightening again or easing further. But as he made clear, a December cut is not guaranteed — and the road ahead for monetary policy may be far less predictable than markets had hoped.