Powell says December rate cut is not certain
Federal Reserve Chairman Jerome Powell said on Wednesday (October 29) that a December rate cut was “not a foregone conclusion” after the central bank cut interest rates by a quarter of a percentage point.
Federal Reserve Chairman Jerome Powell has poured cold water on hopes for a holiday interest rate cut, dampening hopes as the labor market cools and inflation continues.
Powell said a rate cut in December was not guaranteed. Even as the central bank cut the benchmark federal funds rate to a range of 3.75% to 4% on Oct. 29, those looking for certainty had to look elsewhere. The continued government shutdown means the Fed lacks critical data, inflation remains high, and the labor market is showing signs of cooling, all signs that the road ahead is uncertain for Fed officials.
“What do you do if you’re driving in fog? Slow down,” Powell said of the lack of government data.
That point was further emphasized by Powell’s description of strong disagreement among voting members on how to proceed in December.
“When there’s a tension between those two goals, we’re going to have strong views across the committee,” Powell said after a two-day FOMC meeting in October. “A further reduction in policy rates at the December meeting is not a foregone conclusion. We are far from a conclusion.”
In response to a reporter’s question, Powell added: “Maybe it’s time for some on the committee to take a step back and look at whether there are really downside risks to the labor market or whether the growth, the strong growth that we’re seeing, is real.”
Are there more cuts coming?
Powell reiterated that there is no “risk-free” policy path the Fed can take as the job market shows signs of slowing and inflation, currently at 3%, remains above the Fed’s 2% target.
“If the two targets are exposed to roughly equal risks, then one is asking for a rate hike and the other is asking for a rate cut, so it should be neutral,” Powell said, describing Wednesday’s decision as another “risk management” rate cut.
Futures markets had been strongly expecting a rate cut after the Fed’s Dec. 9-10 meeting, but they changed their tune after Chairman Powell’s press conference. As of Wednesday evening, they expect the Fed to keep interest rates on hold.
Some economists also tempered their expectations for a year-end rate cut, but not all.
Inflation appears to be less of a threat than it was earlier this year, said James Knightley, chief international economist at ING. He said in an Oct. 29 memo that tariffs are taking time to be reflected in consumer prices, and that lower energy costs, slower rent growth and slower wage growth are helping ease inflation.
“While we remain somewhat upbeat with our expectations for a rate cut in December, we believe at least two more rate cuts and further dollar weakness will be needed next year to achieve the necessary foundations for growth,” Knightley added.
How will interest rate cuts affect consumers’ wallets?
Dimitri Silva, managing director and head of global rates and foreign exchange at Reams Asset Management, said lower interest rates would ease pressure on consumers by leading to lower interest rates on credit cards, car loans and home loans, while also providing a boost to small and medium-sized businesses, which are a key driver of job growth.
But Silva said it could take six months to a year for changes in interest rates to be reflected in the economy.
Rodney Williams, co-founder of Solo Funds, a financial app that allows users to lend and borrow money, said October’s quarter-point cut will provide little relief for Americans living paycheck to paycheck. He said more users are requesting loans to pay for necessities such as groceries, rent and bills.
“Economically vulnerable households will see little benefit from rate cuts because they are still exposed to high interest rates on their day-to-day credit,” Williams told USA TODAY. “While a quarter-point rate cut could stimulate economic activity and job growth in the long run, the impact will not be felt immediately for consumers desperate for a financial buffer.”
What does a rate cut mean for consumer savings?
As the Fed lowers interest rates, savers will begin to see diminishing returns on their cash.
Banks may be slow to reduce interest rates for borrowers, but they are quicker to reduce interest rates on savings accounts and certificates of deposit.
“Overall, it’s positive for stocks, but negative for savers and bond investors,” said Sean O’Hara, financial director at Pacer.
Disagreements within the FOMC
The Fed’s Sept. 17 “dot plot” — a quarterly snapshot detailing where committee members expect interest rates to reach — shows the median forecast calling for two additional rate cuts by the end of 2025, hinting at a rate cut in December.
But the September dotplot also reveals a wide range of views, with some officials predicting no further rate cuts, while others predicting rates low enough to require 50 basis point cuts in September, October and December.
Wednesday’s decision to reduce the quarterly percentage point was opposed by two of the 12 voting members of the Federal Open Market Committee. Federal Reserve President Stephen Milan wanted to cut interest rates by 0.5 percentage point, while Kansas Fed President Jeffrey Schmidt wanted to keep rates unchanged.
“Markets have become accustomed to clear forward guidance and fewer surprises with Fed decisions, but that could change as we enter a new phase of monetary policy, especially with the arrival of a new Fed chair in May,” said Isaac Wheeler, managing director of balance sheet strategies at Derivatives Path.
Contact Rachel Barber rbarber@usatoday.com X Follow her at @rachelbarber_
