The Federal Reserve voted today to cut the federal funds rate by 25 basis points to a new range of 3.75%–4.00%, marking its first policy easing since 2020. The decision, backed by Chair Jerome Powell and most members of the Federal Open Market Committee (FOMC), comes amid signs of slowing job growth and persistent inflation pressures.
The Fed also announced it will end its balance sheet reduction program (quantitative tightening) on December 1, a key move that signals a structural shift toward liquidity expansion after nearly two years of balance sheet contraction.
Fed Balances Inflation and Employment Risks
In its post-meeting statement, the FOMC noted that economic activity continues to expand at a moderate pace, though job gains have slowed and the unemployment rate has edged higher. Inflation, meanwhile, has “moved up since earlier in the year and remains somewhat elevated.”
The statement underscored that uncertainty surrounding the economic outlook “remains elevated” and that downside risks to employment have risen in recent months. That shift in the Fed’s risk assessment helped justify the rate cut and the decision to halt QT.
Powell’s Dovish Tilt: Policy Flexibility Ahead
The Fed emphasized that it will “carefully assess incoming data, the evolving outlook, and the balance of risks” before making further policy adjustments.
This language mirrors the ‘mid-cycle adjustment’ tone used in 2019 but adds an explicit readiness to ease again if labor market weakness deepens.
The statement also reaffirmed the Fed’s commitment to its 2% inflation target, while making clear that the balance between growth and price stability has shifted toward supporting employment.
Split Vote Highlights Policy Debate
While the majority backed the 25bp cut, two members, Stephen Miran and Jeffrey Schmid, dissented.
Miran favored a larger 50bp cut, arguing that more aggressive easing is needed to offset weakening labor data.
The dissent illustrates the internal tension within the Fed: how far and fast to pivot toward stimulus without reigniting inflation.
Market Reaction and Outlook
Markets largely anticipated the move, with CME FedWatch pricing in a 99.9% probability of a 25bp cut before the announcement.
Attention now turns to Powell’s press conference, where investors will parse his comments for clues about future rate cuts in 2026 and the Fed’s post-QT liquidity roadmap.
Bond yields moved slightly lower following the release, while Bitcoin and equities ticked higher, reflecting expectations that easier monetary policy could reignite risk appetite.
With the Fed’s balance sheet set to stop shrinking in December, traders are already calling this the start of a new liquidity cycle, one that could have far-reaching implications across global markets.
