Fed Tempers Rate Cut Hopes, Citing 'Strongly Differing Views'
Chair Powell's cautious tone after a quarter-point cut injects new uncertainty into the central bank's path, causing traders to pare back bets on a December move.
The Federal Reserve delivered an anticipated quarter-percentage-point interest rate cut on Wednesday but swiftly tempered market enthusiasm for further easing, as Chair Jerome Powell signaled that another reduction in December is far from guaranteed.
Following its latest policy meeting, the central bank reduced its benchmark federal funds rate to a target range of 3.75% to 4.00%. However, the dovish move was immediately overshadowed by Powell's subsequent press conference, where he injected significant uncertainty into the Fed's future trajectory. He described a potential December cut as "not a foregone conclusion" and cautioned that the decision was "far from it."
Powell's comments sent a ripple through financial markets as traders reassessed the path for monetary policy. The odds of a December rate cut, which had been priced at nearly 90% before the announcement, fell to around 65% in its wake, according to data from CME Group's FedWatch Tool. The yield on the 10-year U.S. Treasury note, which moves opposite to its price, climbed as investors sold off government bonds.
The chair pointed to persistent inflation and significant disagreement among policymakers as reasons for the newfound caution. "We have strongly differing views on the committee," Powell stated, revealing a growing internal debate over how to proceed. This sentiment was echoed in a Wall Street Journal report highlighting that deepening divisions within the Federal Open Market Committee are creating a higher bar for continued cuts.
The statement marked a notable pivot from the Fed's previously more predictable path of gradual easing, introducing a more data-dependent and uncertain outlook. While the 25-basis-point cut was widely expected, the commentary suggested the central bank is now grappling more intensely with balancing the risks of a slowing economy against inflation that remains above its long-term target.
"The key takeaway is that the Fed is no longer on a set course," said a chief economist at a major investment bank. "Powell has effectively moved the bank to a neutral stance, where every meeting is now 'live.' They are giving themselves maximum flexibility, which in turn creates ambiguity for investors."
This more hawkish-than-expected tone reflects the central bank's delicate position. After a series of aggressive hikes to tame inflation, the Fed is now navigating a complex environment where economic growth is moderating but price pressures have not fully subsided. Powell's remarks suggest that some officials are wary of cutting rates too quickly, fearing it could reignite inflation.
For investors, the message is clear: the era of predictable, sequential rate cuts may be over for now. The Fed's future actions will hinge heavily on incoming data on inflation and employment, making each new economic report a critical piece of the puzzle. As the market recalibrates its expectations, the increased uncertainty is likely to lead to heightened volatility in both equity and bond markets heading into the final months of the year.