Fed Cuts Rates for the Second Time, but Powell Sends a “Wait and See” Signal

The U.S. Federal Reserve has lowered interest rates to 3.75–4%, but Chair Jerome Powell warned that another cut in December is far from certain, triggering short-term turbulence across global financial markets.

1. A Highly Anticipated Move – but a Cautious Message

On October 29, 2025, the U.S. Federal Reserve officially cut its benchmark interest rate by 0.25 percentage points, bringing the target range down to 3.75%–4%. This marks the second consecutive rate cut this year, underscoring the Fed’s effort to sustain economic momentum amid signs of cooling growth.

However, the initial optimism quickly faded. Fed Chair Jerome Powell emphasized shortly after the announcement that another rate cut in December is “not a sure thing,” noting that “there are sharply differing views” among Federal Open Market Committee (FOMC) members about the policy path ahead.

Complicating matters further, a partial U.S. government shutdown has delayed several key economic reports — including data on employment, inflation, and consumer spending — leaving policymakers “driving through fog,” as Powell described it.

2. Why Did the Fed Decide to Cut Rates Again?

In its official statement, the Fed noted that U.S. economic growth remains moderate, but job gains have slowed, unemployment has edged higher, and inflation is still “somewhat elevated.” The quarter-point cut was therefore a precautionary move to prevent the economy from slipping into a deeper slowdown.

Importantly, the Fed also announced it would end its balance sheet reduction program (Quantitative Tightening – QT) starting December 1, signaling a shift toward a more neutral stance after months of tightening. This means the central bank is now keeping the door open for either direction depending on incoming data.

Powell put it succinctly: “We are gathering every piece of data we can find, assessing it carefully, and planning as if driving through fog — slowly, cautiously, and always ready to adjust course.”

3. Markets React with Caution

Immediately after the rate cut, U.S. equities surged as investors welcomed a more accommodative policy stance. Yet within hours, major indexes such as the S&P 500 and Nasdaq reversed gains after Powell’s warning that “further cuts in December should not be taken for granted.”

According to CME Group’s FedWatch tool, the probability of another rate cut in December dropped sharply from around 85% to 60–70% following Powell’s comments.

At the same time, the U.S. dollar strengthened against major currencies, and the 10-year Treasury yield edged higher as markets recalibrated expectations toward a pause rather than a continued easing cycle. Gold and oil prices also slipped slightly, reflecting reduced expectations of aggressive rate cuts.

4. Deep Division Within the Fed

The October meeting revealed a clear split within the FOMC, with two members dissenting from the decision to cut rates.

Stephen Miran (FOMC Governor) favored a larger 0.5-point cut, arguing that the economy needs stronger stimulus to avoid a sharper downturn.

Jeffrey Schmid, President of the Kansas City Fed, voted against the cut entirely, warning that moving too quickly could reignite inflation pressures.

This divide highlights the Fed’s policy dilemma: balancing growth support against price stability at a time when key economic data remain incomplete due to the government shutdown.

5. Real-World Impact on Consumers and Businesses

The new 3.75–4% rate range will likely lower borrowing costs modestly for home mortgages, auto loans, and credit cards. For consumers, this could provide short-term relief and support household spending. Small businesses may also find financing slightly easier, helping sustain job creation.

However, if the Fed pauses rate cuts too soon, borrowing costs could remain elevated, discouraging investment and slowing business expansion. Some analysts warn that “if the Fed waits too long, the economy may lose momentum faster than expected.”

6. What Comes Next – Scenarios and Key Indicators

Analysts are now split into two main camps regarding the Fed’s next move:

Scenario 1: A pause in rate cuts — The Fed holds steady until it gets clearer signals from the labor market and inflation data, an approach Powell seems to favor to maintain flexibility.

Scenario 2: Another modest cut in December — Possible if upcoming indicators such as Non-Farm Payrolls (NFP) or Consumer Price Index (CPI/PCE) show weakness.

Key data to watch in November:

Non-Farm Payrolls report: further slowing in job creation could reopen the door to another cut.

CPI/PCE inflation data: if inflation moves closer to 2%, the Fed will have more confidence to ease further.

Statements from Powell and other Fed officials: any signal of a “slower tightening pace” could shift market sentiment rapidly.

7. Conclusion: A Cautious Step in a Foggy Landscape

The latest move to lower rates to 3.75–4% underscores the Fed’s intent to support growth without reigniting inflation. Yet Powell’s caution makes clear that this is not the start of an automatic easing cycle — rather, a data-driven pause may lie ahead.

With economic reports delayed, FOMC opinions divided, and markets hypersensitive to Powell’s every word, the wisest course for investors is to stay alert, remain diversified, and watch the data closely.

The market has entered a new phase of “uncertain easing,” where information and patience will define who gains the upper hand.

FAQs

1. Why did the Fed cut rates but hesitate on further reductions?
Because growth and employment are cooling, yet inflation remains above target and data gaps persist. The Fed prefers flexibility rather than committing prematurely.

2. What does ending Quantitative Tightening (QT) mean?
Halting QT means the Fed will stop selling bonds and mortgage-backed securities, which helps ease pressure on capital markets and improves liquidity.

3. How should investors respond to Powell’s warning?
Investors should dial back expectations for aggressive cuts, prepare for a period of stable or slower rate adjustments, and monitor macroeconomic data to realign portfolios.

4. Is this the last Fed cut of the year?
Not necessarily — but given Powell’s tone and the falling FedWatch probabilities, it’s increasingly likely that the Fed will pause in December to reassess conditions.