Key Takeaways
- Fed cuts rates by 0.25% to 3.75%-4.00% range
- Two policymakers dissent – one wanted deeper cut, one wanted no cut
- Fed to restart limited Treasury purchases amid liquidity concerns
- Government shutdown creating data limitations for decision-making
The U.S. Federal Reserve has cut interest rates by a quarter percentage point amid concerns about the job market and scarce liquidity conditions. The 10-2 decision reflects deep divisions within the central bank as it navigates economic uncertainty during a government shutdown.
Policy Decision and Dissent
The Federal Reserve lowered its benchmark interest rate to 3.75%-4.00% on Wednesday, October 29, 2025. The move drew opposition from two policymakers – Governor Stephen Miran advocated for a deeper cut while Kansas City Fed President Jeffrey Schmid opposed any reduction given ongoing inflation pressures.
This marks only the third time since 1990 that Fed officials have dissented in both directions at the same meeting, highlighting the unusual policy divide.
Balance Sheet Moves
Alongside the rate cut, the Fed announced it will restart limited Treasury security purchases to address liquidity concerns in money markets. The central bank will maintain its total holdings steady but shift its portfolio by reinvesting maturing mortgage-backed securities into Treasury bills starting December 1.
Market Reaction and Outlook
U.S. stocks held modest gains following the announcement, while Treasury yields rose. Markets are pricing in additional rate cuts, with strong expectations for another reduction at the Fed’s December meeting.
“A single soft inflation release, anchored expectations, and anecdotal cooling labor demand support a cautious easing bias,” said Alexandra Wilson-Elizondo, global co-CIO of multi-asset solutions at Goldman Sachs Asset Management, adding that “if conditions hold, another 25-basis-point cut at the December meeting seems likely.”
Shutdown Impacts and Economic Data
Fed officials acknowledged significant data limitations due to the ongoing federal government shutdown. The central bank is relying on August employment data – the last official jobs report available – while noting that “available indicators suggest” continued moderate economic growth.
Inflation has climbed from 2.3% in April to approximately 2.7% in August according to the final PCE reading before the shutdown. The Fed expects prices to reach 3% by year-end before gradually easing, even as employment risks increase.
“Downside risks to employment rose in recent months,” the Fed stated in its new policy statement, signaling growing concern about job market strength.
