The president of the Federal Reserve, Jerome Powell, stated this Wednesday, October 29, 2025, in Washington, that a new interest rate cut in December is not guaranteed. The statement comes after the Federal Open Market Committee decided to reduce the base rate by 0.25 percentage points, to the range of 3.75% to 4% per year. Powell highlighted the balanced risks of rising inflation and falling employment as reasons for possibly maintaining neutral monetary policy.
The decision reflects the second consecutive cut in 2025, initiated in September to support the slowing job market. Investors were awaiting clear signals for December, but Powell emphasized that the committee will evaluate recent data, including impacts from the federal government shutdown.
Financial markets reacted with volatility, with stock indexes in the United States falling after the press conference. Powell mentioned that inflation, although on a downward trajectory, remains above the target of 2% per year, while unemployment rose slightly to 4.5% in August.
FOMC decision and internal disagreements
The Federal Open Market Committee approved the cut by 10 votes to 2, with dissent from directors who defended maintenance or a greater reduction. Stephen Miran voted for a 0.50 percentage point cut, while Jeffrey Schmid preferred rate stability.
Powell explained that the differing views on the committee reflect the delicate balance between the goals of full employment and price stability. The government shutdown, which began in October, limited official data, forcing the use of private indicators to embodychoose.
This internal division signals caution for the next meetings, with the Fed president reinforcing that decisions will be based on concrete evidence.
Risks to inflation and the job market
Inflation in the United States recorded a 3% increase in the consumer price index in September, above the projection of 2.9%. Powell noted that, excluding effects from trade tariffs, prices converge toward the 2% target, but persistent pressures on services require vigilance.
Employment data shows a slowdown in job creation, with monthly gains below 150 thousand since July. The unemployment rate at 4.5% indicates risks of weakening, especially with reduced immigration affecting the workforce.
The Fed chair warned that asymmetric risks require a meeting-by-meeting approach, without prior commitments.
Government Shutdown Impact on Data
The budget shutdown, in its fourth week, has interrupted official employment and inflation reports. Powell compared the situation to driving in fog, justifying slow decisions to avoid mistakes.
Private indicators, such as business surveys, suggest moderate growth in economic activity, but with signs of weakness in the services sector. The Fed plans to resume limited purchases of Treasury bonds starting in December to stabilize liquidity.
This measure aims to prevent tensions in short-term markets,similar to those of 2019, without reversing the balance sheet reduction process.
Economic projections and interest rate trajectory
The Federal Reserve revised projections for 2025, raising GDP growth to 1.6% and keeping inflation at 3%. For 2026, unemployment falls to 4.4%, with additional interest cuts projected at 0.50 percentage points in total.
- GDP growth: 1.6% in 2025, compared to 1.4% previously.
- PCE inflation: 2.6% in 2026, revised up from 2.4%.
- Federal funds rate: Average of 3.5% by the end of 2025.
Powell reiterated that the dual mandate prioritizes balance, with a focus on November data to guide December.
Quantitative Tightening ends in December
The Quantitative Tightening program, which began in 2022, ends on December 1, after reducing the Fed’s balance sheet by US$1.5 trillion. This reduction removed liquidity equivalent to a monetary tightening, contributing to high rates.
Powell indicated that bank reserves have fallen to levels close to 8% of GDP, risking financial instability. The transition to limited bond purchases aims to maintain ample reserves without excessive expansion.
This change aligns with the gradual normalization strategy, monitoring impacts on corporate loans and investments.
Reactionsmarkets and political criticism
Indices such as the S&P 500 fell 0.8% after Powell’s speeches, with 10-year Treasury yields rising to 4.2%. Investors reduced bets on December cut from 90% to 75%, according to futures contracts.
President Donald Trump criticized Powell in Seoul, calling him “too late” for moderate cuts. Trump defends more aggressive reductions, citing a drop in fuel prices and rising wages as justification.
Analysts predict that political pressures will not alter the Fed’s independence, but will increase volatility in global assets.
Perspectives for 2026 and Powell’s term
Powell’s term ends in 2026, with speculation about a successor under the Trump administration. Projections indicate a neutral rate of 3% to 3.5%, allowing for pauses in cuts if inflation persists.
The Fed monitors the effects of tariffs on imports, which increased costs by 0.5% in the third quarter. Powell estimates temporary impacts, absorbed by supply chains.
This view supports moderate optimism, with a focus on economic resilience despite fiscal uncertainties.
