Fed lowers rates, but Powell suggests move may be the last of 2025

Highlights:

• US central bank cuts rates by a quarter of a percentage point
• Fed Governor Miran, Kansas City Fed President Schmid dissent
• Policy decision was made in the absence of key government data
• Fed's balance sheet drawdown halted
• Powell says there are 'strongly differing views' within Fed about a December rate cut

A policy divide within the US central bank and a lack of federal government data may put another interest rate cut out of reach this year, Federal Reserve Chair Jerome Powell said on Wednesday, as he acknowledged the threats that officials see to the job market but also the risky nature of making further rate moves without a fuller picture of the economy.

The Fed on Wednesday cut interest rates by a quarter of a percentage point, as expected, as a way to temper any further weakening of the job market. But the central bank's new policy statement included several references to the lack of official data during a federal government shutdown, and Powell told reporters later that policymakers are likely to become more cautious if it deprives them of further job and inflation reports.

"We're going to collect every scrap of data we can find, evaluate it and think carefully about it. And that's our job," Powell said in a press conference after a two-day policy meeting, as he ticked off private data the Fed can use, along with its own in-house surveys of business executives and less formal interviews with a range of contacts around the country.

"If you asked me could it affect ... the December meeting, I'm not saying it's going to, but yeah, you could imagine that. You know, what do you do if you're driving in the fog? You slow down."

His comments show the developing dilemma for the Fed as a budget dispute between the Trump administration and Democrats in Congress extends into a second month, with the government unable to carry out surveys and produce reports that are key to central bankers' policy decisions - in this case possibly delaying rate cuts that President Donald Trump himself wants.

Beyond the data issues, Powell said there were "strongly differing views" among his Fed colleagues about the appropriate path for monetary policy moving forward, with "a growing chorus now ... feeling like maybe this is where we should at least wait a cycle" before cutting rates again.

Financial markets responded to Powell's remarks by reducing bets on another rate cut at the Fed's December 9-10 meeting, a prospect now given roughly two-to-one odds, with the S&P 500 index ending the day largely flat after giving up earlier gains.

"Powell explicitly signaled a break between this and future meetings," as he manages a policy-setting committee that agreed to consecutive rate cuts in September and October even as many of its members remain concerned that inflation is expected to rise through the remainder of 2025, said Michael Pearce, deputy chief US economist at Oxford Economics.

Even those who have emphasized the possible weakness in the job market agree the Fed should now move carefully.

The economy continues to throw off mixed signals, Powell said, with "bifurcated" consumers stressed at the low end of the income distribution but those at the upper end spending robustly, and economic growth buoyed by business investment even if that is not translating into strong job growth.

The latest rate cut drew dissents from two policymakers, with Fed Governor Stephen Miran again calling for a deeper reduction in borrowing costs and Kansas City Fed President Jeffrey Schmid favoring no cut at all given ongoing inflation.

It was only the third time since 1990, according to data from the St. Louis Fed, that policymakers had dissented in different policy directions, a sign of the split opinion at the central bank about where the economy is headed.

A 'SOLID' POLICY DECISION

Powell still called the Fed's 10-2 vote in favor of lowering the benchmark interest rate to the 3.75%-4.00% range a "solid" endorsement of easing policy to help support a gradually cooling labor market.

But "there were strongly differing views about how to proceed in December," Powell said, an unusually blunt comment about an upcoming meeting, something Fed chiefs usually shy away from.

"A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it, policy is not on a preset course," he said.

Powell said his own view is that the current policy rate remains "modestly restrictive" and is still putting some downward pressure on inflation, which he said as a base case will likely rise temporarily in coming months due to the Trump administration's import tariffs, but then fall.

"I think it would not be appropriate to just ignore or assume away the inflation issue; at the same time I think the risk of higher, more persistent inflation has declined significantly since April," Powell said, adding that the Fed would resume its rate cuts at some point. "I think we are trying to get to the end of this cycle with the labor market in a good place and with inflation on its way to 2% or at 2%."

Fed policymakers acknowledged the limits in their decision-making process posed by the government shutdown, dating their view of the unemployment rate to August - the month of the last official jobs release - while noting that "available indicators suggest" the economy continued growing at a moderate pace.

Inflation has not risen as strongly as initially expected on the back of the White House's new import taxes, but nevertheless has climbed from around 2.3% in April to about 2.7% in August, according to the last official estimate released for the Personal Consumption Expenditures Price Index before the shutdown. The Fed uses the PCE to set its 2% inflation target, and in projections issued in September policymakers expected it to rise to 3% by the end of this year.

The Fed also announced on Wednesday that it will restart limited purchases of Treasury securities after money markets showed signs that liquidity was becoming scarce, a condition it has pledged to avoid.

The decision to end the balance sheet drawdown will keep the total amount of the central bank's roughly $6.61 trillion in holdings steady on a month-to-month basis as of December 1, but shift its portfolio by reinvesting the proceeds of maturing mortgage-backed securities into Treasury bills.