The Federal Reserve Cuts Key Benchmark Interest Rates
On Wednesday, 29th October, the Federal Reserve’s FOMC (Federal Open Market Committee), for the second time in 2025, and in consecutive months, reduced interest rates by 25 basis points to 3.75% – 4.00%, marking the lowest level in three years. The vote to cut rates was 10 – 2 in favour, with two dissenting voices opposing the decision: Stephen Miran and the President of the Federal Reserve Bank of Kansas City, Jeffrey Schmid.
It appears that the Federal Reserve is divided into two camps, with the dissenters concerned about inflation, while the majority are focused on the job market. Two non-voting members of the FOMC, Lorie Logan, President of the Federal Reserve Bank of Dallas, and Beth Hammack, President of the Federal Reserve Bank of Cleveland, who will rotate into voting positions in 2026, both indicated they would have preferred to hold rates steady this time.
Remarks made by the aforementioned Federal Reserve Bank Chairs suggest that, moving forward, there will be a lively debate over the next six weeks ahead of the next FOMC policy meeting on 9th – 10th December. It is shaping up to be a direct contest between those concerned about persistent inflation and those prioritising support for the labour market. Dallas Fed chair Logan remarked, “I’d find it difficult to cut rates again in December unless there is clear evidence that inflation will fall faster than expected or that the labour market will cool more rapidly.”
At a press conference following the rate cut, Federal Reserve Chairman Jerome Powell advised that another reduction at the next policy meeting in December “is not a foregone conclusion”. The Chairman added, “There were strongly differing views on how to proceed in December during the meeting today and we have not made a decision about December”. Therefore, no decision has yet been made regarding future rate cuts, with Powell emphasising that any such move should not be seen as inevitable.
The Federal Reserve has a so-called dual mandate requiring policymakers to maintain both low unemployment and low inflation. Chairman Powell noted in October that risks to the labour market are increasing, though experts have advised that the ongoing government shutdown has resulted in a lack of economic data, a factor that may be hampering FOMC decision-making. One analyst commented, “A prolonged government shutdown and on-going tariff negotiations continue to introduce significant uncertainty into the immediate monetary policy outlook”.
Experts suggest that the Federal Reserve’s hands are somewhat limited due to the near blackout on economic data. However, the government did unexpectedly release the September 2025 CPI (Consumer Price Index) figures on 24th October, which showed a 3% annual increase and 0.3% monthly increase, both lower than anticipated. The FOMC remains committed to both sides of its dual mandate, and with economic uncertainty still elevated, has seemingly opted to prioritise employment for now. Inflation, however, remains above target, and if next month’s data (assuming the government shutdown ends) shows an uptick in inflation, it could see renewed tension between the labour market and inflation factions within the FOMC.
