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Federal Reserve Chair Jerome Powell cautioned investors against assuming the US central bank would follow its second straight interest-rate cut with another in December.
“A further reduction in the policy rate at the December meeting is not a foregone conclusion, far from it,” Powell said in the opening comments of his post-meeting press conference.
The remarks seemed aimed at reining in expectations in financial markets, where the probability of another quarter-point cut in December was firmly above 90% before he spoke.
Treasuries yields and the dollar jumped, while stocks turned negative after Powell’s comments. Interest-rate swaps showed traders see about a 60% probability for a quarter-point cut in December. Prior to the meeting, a move in December was almost fully priced in.
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%.
The Fed also said it would stop shrinking its portfolio of assets beginning Dec. 1, closing the book on a process that began in 2022. The Fed has since shed more than $2 trillion in Treasuries and mortgage-backed securities, bringing the balance sheet below $6.6 trillion, its smallest size since 2020.
Fed officials on both ends of the policy spectrum opposed the decision. Governor Stephen Miran, who joined the central bank last month and is on unpaid leave from his post as chair of the White House Council of Economic Advisers, dissented again in favor of a larger, half-point reduction. Kansas City Fed President Jeff Schmid said he preferred not to cut rates at all, after supporting last month’s rate reduction.
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