Fed Cuts Rates, Powell Signals December Move 'Far From' Certain

Cameron Crise, Macro Strategist with Bloomberg News, discusses equity market narrowness and Chair Powell's hawkish pushback.

Federal Reserve Chair Jerome Powell’s blunt warning that investors need to rein in expectations for a December interest-rate cut underscored a growing tug-of-war among US policymakers who are opposed in their outlooks for jobs and inflation.

While Powell made it clear that the primary concern for some is a cooling job market, others inside the Fed are warning persistent inflation will limit room for more easing. And a freeze on the release of official economic data during the ongoing government shutdown is only hardening the divide.

Powell’s comments came after the Federal Open Market Committee voted 10-2 to lower the target range for the federal funds rate by a quarter percentage point, to 3.75%-4%. It was the second straight rate cut, but for the first time in six years, there were dissents in both directions — with one official advocating a larger reduction and another preferring to stay on hold.

In unusually direct remarks, the Fed chair used the opening statement of his post-meeting press conference to hammer home a message that a follow-up move in December is not a done deal.

“A further reduction in the policy rate at the December meeting is not a foregone conclusion — far from it,” Powell said. Later, while taking questions from reporters, he added that there was “a growing chorus now of feeling like maybe this is where we should at least wait a cycle” before taking another step.

Investors got the message loud and clear: Treasuries fell by the most in nearly five months after his remarks, sending the yield on the 10-year note back above 4%. Treasuries later trimmed those losses.

Futures linked to the Fed’s benchmark rate suggest another cut at the Fed’s next policy meeting on Dec. 9-10 is now only moderately likely, instead of a virtual lock.

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