U.S. FOMC Meeting (October 28-29, 2025)

The Fed delivers on another quarter-point rate cut, ends balance sheet run-off in December

• As widely expected, the Federal Open Market Committee (FOMC) reduced the federal funds rate by an additional 25 basis points (bps), lowering the target range to 3.75%-4.00%. 
  
• The statement was little changed from September, with nods to growth expanding at a moderate pace and the labor market having softened – as evidenced by the slowing in job gains. Like September, the statement noted that the Committee sees the downside risks to its employment mandate having 'increased in recent months'. 
  
• The FOMC also announced an end to its 'Quantitative Tightening' (QT) program as of December 1st – a process whereby maturing U.S. Treasuries and Mortgage-Backed Securities roll-off the Fed's balance sheet. 
  
  • In a recent speech, Chair Powell had flagged that the Fed's three-year QT efforts were nearing the end, as some early signs of strain had started to surface in money markets. Since June 2022, the Fed's balance sheet has shrunk by $2.5 trillion with current reserves sitting around $6.5 trillion. 
    
• Ten of the twelve FOMC members voted in favor of today's decision. Stephen Miran (again) dissented and instead preferred a larger 50 bps cut, while Jeffery Schmid preferred no change to the policy rate this meeting.

Key Implications

• Today's decision to further reduce the fed funds rate comes at a uniquely challenging time for policymakers, given the data vacuum created by the ongoing government shutdown. However, alternative data sources – including ADP payrolls and Indeed job postings – alongside the Fed's ample business contacts leveraged for its Beige Book all suggest that the economy hasn't materially changed since the FOMC's September meeting. Downside risks to the labor market remain, supporting a gradual shift to a more neutral policy setting. 
• While the data blackout will provide Chair Powell an easy out to sidestep today's media questions on how the Committee plans to approach the next policy announcement, we feel another rate cut is more likely than not in December. Recall that the September Summary of Economic Projections showed a small majority of officials favoring two additional cuts by year-end (i.e., October and December). Absent a sudden shift in the economic outlook over the next six weeks, this view is unlikely to change. But given the growing divide among policymakers and the ongoing risk that a prolonged government shutdown could affect future inflation releases – for which there isn't a reliable alternative – Fed officials are likely to become more cautious heading into next year and hold the policy rate steady through Q1.    

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