Fed cuts rates again but throws cold water on a December rate cut

The Federal Reserve cut interest rates by 0.25% on Wednesday, even as the ongoing government shutdown restricts the release of critical economic data — though Fed chair Jerome Powell threw cold water on Wall Street's bets on another rate cut by year-end.Why it matters: It's the second straight rate cut aimed at safeguarding America's weakening jobs market, but the Fed policymakers were sharply divided, and the path of interest rates ahead looks uncertainWhat they're saying: "In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December," Powell said in a post-meeting news conference."A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it," Powell said.Two members of the Fed policy committee dissented, one (governor Stephen Miran) favoring a bigger rate cut and another (Kansas City Fed president Jeffrey Schmid) favoring leaving rates steady.By the numbers: Powell's comments on December's status quickly moved markets.Stocks turned negative almost immediately, and yields on 2-year Treasuries rose 9 basis points, as markets slashed bets on another cut.Driving the news: Wednesday's reduction brings the federal funds rate to a range of 3.75%-4%.The policy-setting Federal Open Market Committee also said it will conclude shrinking its multitrillion-dollar balance sheet on Dec. 1, reflecting recent tensions in money markets."Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low," Powell said in opening remarks at the news conference. "In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months," he added.The intrigue: The Fed has been relying on private sector indicators and nationwide anecdotes to judge how the economy has performed since its last policy meeting in mid-September. Still, those tools do not measure up to government-produced reports that are considered the gold standard for data. What to watch: The government shutdown has halted the release of key indicators, including the all-important monthly jobs report.The White House recalled workers to produce the September inflation report, though that is not expected to be the case for future data. It showed prices rising at a slower pace, reinforcing the idea that President Trump's tariff policies are not reigning inflationary pressures the way some economists previously believed.Between the lines: The Fed's latest rate cut comes as the White House narrows in on five candidates to replace the central bank's chief, with an announcement expected by year-end.Powell has not said whether he will remain on the Fed board as a governor after his term as chair ends. Of note: The decision to stop shrinking its balance sheet reflects signs of funding strains in the plumbing of the financial system. Officials said they would end the program, called quantitative tightening, which has been underway since 2022, on Dec. 1.The Fed will reinvest its principal payments from its current holdings into Treasury bills instead of allowing the assets to roll off its multitrillion-dollar balance sheet.Editor's note: This story has been updated with comments from Fed chair Powell.

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