The Federal Reserve slashed interest rates by another quarter-point on October 29, 2025—but signaled growing uncertainty about its next steps amid a divided committee and a murky economic outlook.
What Just Happened at the Fed?
In its latest policy meeting, the Fed lowered the federal funds rate to just under 4%, marking the second cut this year. Chair Jerome Powell described the move as bringing monetary policy closer to a “neutral” stance—neither stimulating nor restraining growth.
However, Powell quickly tempered expectations for another cut in December, calling it “not a foregone conclusion.” Markets reacted instantly: the S&P 500 wobbled before recovering, while the 2-year Treasury yield jumped—the biggest single-day rise since June.
Why the Fed Is Split
For the third straight meeting, the Federal Open Market Committee (FOMC) saw dissenting votes—in opposite directions. Stephen Miran, the newest Fed governor, pushed for a more aggressive half-point cut. Meanwhile, Jeffrey Schmid of the Kansas City Fed opposed any cut at all.
This rare split reflects deeper disagreements:
- Some officials fear a weakening labor market and rising unemployment.
- Others worry inflation could re-accelerate if rates fall too far.
“There’s no risk-free path,” Powell admitted during the press conference—a phrase he repeated more than once.
Labor Market Signals Mixed Messages
While headline unemployment remains stable, Powell acknowledged troubling signs beneath the surface. Notably, joblessness among Black workers had been climbing sharply before government data collection halted due to the ongoing federal shutdown.
“Our tools don’t allow us to target any demographic,” Powell said—but added that a tight labor market remains the ideal scenario for all workers.
AI Boom: Bubble or Real Growth?
When asked if the surge in AI investment resembles the dot-com bubble, Powell was clear: “This is different.” He pointed out that today’s AI firms often have real earnings—unlike many 1990s startups that were little more than concepts.
Still, he noted that some AI-related construction, especially data centers, is being funded by debt rather than cash—raising questions about sustainability among less-established players like OpenAI.
Balance Sheet Pause—and What Comes Next
Beginning December 1, the Fed will stop shrinking its $7.4 trillion balance sheet. Powell cited recent market strains as justification for the shift. But he also hinted that balance sheet expansion may eventually resume to match growing liabilities.
How the Shutdown Complicates Everything
With key economic data—like jobs reports and inflation metrics—on hold due to the government shutdown, the Fed is flying partly blind. “What do you do if you’re driving in the fog? You slow down,” Powell said.
If the shutdown persists into December, the lack of fresh data could make the Fed even more cautious about further rate cuts.
Market Reactions in Real Time
| Indicator | Pre-Meeting | Post-Powell Comments |
|---|---|---|
| Dec Rate Cut Probability | 90%+ | ~70% |
| 2-Year Treasury Yield | Steady | +0.10% (largest jump since June) |
| Nvidia Market Cap | Above $5T | Fell below $5T |
What This Means for You
If you’re a borrower, lower rates could mean slightly cheaper loans—but don’t expect dramatic drops. Savers will continue to see modest returns on deposits. Meanwhile, investors should brace for volatility as the Fed navigates conflicting signals on inflation, employment, and fiscal uncertainty.
