FEDERAL RESERVE'S RECENT MEETING: POWELL THERW A WRENCH INTO A DECEMBER RATE CUT & WHAT CHANGES IN NEW FED STATEMENT

Federal Reserve’s recent meeting, why Jerome Powell threw a wrench into expectations for a December rate cut, and what changed in the new Fed statement

What happened

• The Fed cut its benchmark federal funds rate by ¼ percentage point (25 basis points) to a target range of 3.75% to 4.00%. 

• However, Chair Powell emphasised that a further cut in December is “far from a foregone conclusion”. 

• Market expectations shifted: for example, the probability of a December cut dropped significantly (“from ~90% to ~56%” according to one source) following the remarks. 

Why Powell and the Fed are pushing back on a December cut

A few key factors:

1. Data uncertainty
   Due to the U.S. federal government shutdown, many official economic data releases have been delayed or missing — especially labor market and inflation metrics. 
   Powell described the situation as akin to “driving in the fog” given the lack of visibility. 

2. Mixed economic signals
   

   

   • On one hand: The labour market is showing signs of softening — fewer hires, potentially higher downside risks for employment. 

   • On the other hand: Inflation remains elevated and certain inflation pressures (e.g., in goods, housing) are still persistent. So the Fed feels the inflation risk remains. 
     This tug-of-war creates a dilemma: cutting rates helps jobs, but could undermine inflation control.

3. Policy divides and caution
   Within the Federal Open Market Committee (FOMC) there are divergent views: some favour quicker cuts, others favour holding off. Powell flagged this explicitly. 
   The “not on a preset course” message is stronger than in past meetings.

What changed in the Fed’s new statement

Compared to prior statements, key shifts include:

• An explicit mention of the elevated uncertainty / lack of data flow due to the government shutdown. 

• A tone shift to emphasise that future policy is not guaranteed — the December meeting is not being pre-committed as a cut.

• A continued acknowledgement of the dual mandate: “risks to employment have increased” and “inflation remains somewhat elevated” (or similar language). For example, one statement mentioned risks to employment had “risen in recent months”. 

• The Fed also indicated they will begin halting the runoff of its balance sheet (i.e., ending its quantitative tightening) starting December 1.

What this means

• For markets: Investors who had assumed a December cut were caught off-guard — the drop in probability reflects that.

• For borrowers/consumers: While the rate is now lower than before, the path of future lower rates is less certain than previously assumed.

• For the economy: The Fed is signalling that it is willing to pause and evaluate more data rather than move automatically.

• For policy watchers: The Fed is emphasising that it is balancing between inflation and employment risks, rather than strongly tilting toward one side.

Bottom line

The Fed cut rates this meeting, but the major headline is not the cut itself — it’s the Fed’s warning that further cuts (especially in December) are not inevitable. The changing wording in their statement and Chair Powell’s forceful language suggest a more cautious, data-dependent approach.