U.S. Fed Cuts Rates by 25 bps; Two Policymakers Dissent Amid Data Gaps from Shutdown

The U.S. Federal Reserve has cut its benchmark interest rate by a quarter of a percentage point, lowering the policy range to 3.75%–4.00%, in a closely watched and divided decision. The move reflects the Fed’s efforts to support economic growth while navigating limited data availability during the ongoing federal government shutdown.

Rate Cut and Liquidity Measures

The 10–2 decision came as policymakers cited signs of tightening liquidity in money markets. Alongside the rate cut, the Fed announced plans to restart limited purchases of Treasury securities, a step aimed at preventing further liquidity shortages.

The central bank stated that it will maintain the overall size of its balance sheet steady on a month-to-month basis from December 1, while reinvesting proceeds from maturing mortgage-backed securities into Treasury bills to rebalance its portfolio.

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Policy Division at the Fed

Two key policymakers dissented from the decision:

• Governor Stephen Miran pushed for a deeper reduction in borrowing costs.

• Kansas City Fed President Jeffrey Schmid opposed any rate cut, citing persistent inflation pressures.

This rare split marked only the third time since 1990 that members of the Fed have dissented both in favor of tighter and looser policy at the same meeting.

Economic Context and Market Reaction

The decision to ease policy slightly was expected by investors, who viewed it as a measure to stabilize a cooling job market. U.S. stock indexes posted modest gains, while Treasury yields rose following the announcement.

Market participants continued to price in expectations of another 25-basis-point cut at the Fed’s final policy meeting in December, followed by a possible further easing in March 2026.

Alexandra Wilson-Elizondo, Global Co-CIO of Multi-Asset Solutions at Goldman Sachs Asset Management, said that “anchored expectations, a soft inflation release, and signs of labor market cooling support a cautious easing bias.”

Shutdown Limits Data Visibility

Fed officials acknowledged that the government shutdown has hindered access to recent economic data, particularly on employment. The central bank relied on August’s unemployment figures, the last available official release, while noting that “available indicators suggest” the economy continues to grow at a moderate pace.

Inflation and Employment Outlook

Inflation has been rising gradually, from 2.3% in April to 2.7% in August, as per the last available Personal Consumption Expenditures (PCE) Price Index data — the Fed’s preferred inflation gauge. Policymakers expect the rate to reach 3% by year-end, before easing gradually.

Meanwhile, the Fed expressed growing concern over the job market, stating that “downside risks to employment rose in recent months.”

Outlook Ahead

With economic data limited by the shutdown and inflation still above target, the Fed faces a complex policy landscape. Markets expect continued cautious easing, with investors closely watching signals from the December policy meeting.

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