The Federal Reserve on Wednesday delivered its second straight interest-rate cut of 2025 and said it will stop shrinking its $6.6 trillion balance sheet at the start of December, a move aimed at easing pressure in money markets even as the central bank acknowledged it is operating with limited visibility because of the federal government shutdown.
By a 10-2 vote, the Federal Open Market Committee lowered its benchmark interest rate to a range of 3.75 percent to 4.00 percent and said it will end its balance sheet runoff, the process known as quantitative tightening, on December 1. The rate cut aims to support the US economy amid the impact of President Donald Trump’s broad tariffs and gives policymakers additional time while the government shutdown continues.
Governor Stephen Miran dissented once again, arguing the Fed should move more aggressively with a half-point rate cut, while Kansas City Fed President Jeffrey Schmid opposed the decision from the other side, saying the central bank should have left rates unchanged.
The rate influences borrowing costs for mortgages, auto loans, and credit cards, and was cut despite the Fed operating with limited economic data amid the shutdown. Except for last week’s consumer price index release, the government has halted all data reporting, leaving key indicators like nonfarm payrolls, retail sales, and other major economic metrics unavailable.
In its post-meeting statement, the committee highlighted the uncertainty caused by missing data.
“Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments,” the statement said. “Inflation has moved up since earlier in the year and remains somewhat elevated.”
The statement reaffirmed policymakers’ concerns about the labor market, noting that “downside risks to employment rose in recent months.”
The Fed aims to balance full employment with stable prices, though officials have recently signaled greater concern over the labor market; alongside the rate cut, the central bank announced it will end the reduction of its $6.6 trillion bond holdings.
The program, known as quantitative tightening (QT), had reduced the Fed’s holdings of Treasurys and mortgage-backed securities by about $2.3 trillion. Rather than reinvesting maturing proceeds, the Fed allowed them to roll off its balance sheet gradually, but recent strains in short-term lending markets suggest the runoff may have gone far enough.
Previously, the Fed had rolled the proceeds over into securities of the same maturities.
Historically, markets have often risen when the Fed cuts rates under similar conditions, but looser policy also carries the risk of higher inflation, which previously prompted the central bank to implement aggressive rate hikes.
By a 10-2 vote, the Federal Open Market Committee lowered its benchmark interest rate to a range of 3.75 percent to 4.00 percent and said it will end its balance sheet runoff, the process known as quantitative tightening, on December 1. The rate cut aims to support the US economy amid the impact of President Donald Trump’s broad tariffs and gives policymakers additional time while the government shutdown continues.
Governor Stephen Miran dissented once again, arguing the Fed should move more aggressively with a half-point rate cut, while Kansas City Fed President Jeffrey Schmid opposed the decision from the other side, saying the central bank should have left rates unchanged.
The rate influences borrowing costs for mortgages, auto loans, and credit cards, and was cut despite the Fed operating with limited economic data amid the shutdown. Except for last week’s consumer price index release, the government has halted all data reporting, leaving key indicators like nonfarm payrolls, retail sales, and other major economic metrics unavailable.
In its post-meeting statement, the committee highlighted the uncertainty caused by missing data.
“Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments,” the statement said. “Inflation has moved up since earlier in the year and remains somewhat elevated.”
The statement reaffirmed policymakers’ concerns about the labor market, noting that “downside risks to employment rose in recent months.”
The Fed aims to balance full employment with stable prices, though officials have recently signaled greater concern over the labor market; alongside the rate cut, the central bank announced it will end the reduction of its $6.6 trillion bond holdings.
The program, known as quantitative tightening (QT), had reduced the Fed’s holdings of Treasurys and mortgage-backed securities by about $2.3 trillion. Rather than reinvesting maturing proceeds, the Fed allowed them to roll off its balance sheet gradually, but recent strains in short-term lending markets suggest the runoff may have gone far enough.
Previously, the Fed had rolled the proceeds over into securities of the same maturities.
Historically, markets have often risen when the Fed cuts rates under similar conditions, but looser policy also carries the risk of higher inflation, which previously prompted the central bank to implement aggressive rate hikes.
