The U.S. Federal Reserve's recent 25-basis-point rate cut has sparked a sharp recalibration of market expectations for further easing in 2025. Following the October 28-29 policy meeting, the probability of a December rate reduction now stands at 69.8%, down from near-certainty earlier in the year, according to
. The Fed's hawkish messaging, coupled with a divided Federal Open Market Committee (FOMC) vote, has dimmed the outlook for a repeat cut, with Chair Jerome Powell emphasizing that "a further reduction in the policy rate at the December meeting is not a foregone conclusion," as reported by the .
The Fed's decision to cut rates to a range of 3.75%-4.00% was accompanied by a starkly split FOMC, with Governor Stephen Miran dissenting in favor of a 50-basis-point reduction and Kansas City Fed President Jeff Schmid advocating for no cut at all, per that FXStreet piece. This internal division, the third such instance since 1990, underscores the central bank's struggle to balance inflation risks against a cooling labor market. Powell's repeated warnings about "downside risks to employment" have prompted investors to scale back December cut odds to 70%, per CME FedWatch data.
The Fed's policy pivot comes amid broader economic uncertainties. A one-year trade truce between the U.S. and China, announced ahead of the rate decision, has modestly boosted risk sentiment but has yet to offset persistent inflation pressures. The agreement to roll back tariffs and ease export controls has reduced global trade tensions, yet core inflation remains stubbornly above the Fed's 2% target at 2.7%, as the Hurriyet Daily News noted. Meanwhile, the Swiss economy's recent rebound, with the October ZEW Expectations Index surging to -7.7, highlights uneven global growth dynamics, according to the earlier FXStreet report.
The Fed's decision also marks the end of its quantitative tightening (QT) program, with securities holdings reduction set to conclude on December 1, per the Hurriyet Daily News. This move aims to maintain ample liquidity as the central bank navigates a data-starved environment caused by the ongoing U.S. government shutdown. Powell acknowledged the challenge of policymaking without key economic indicators, likening it to "driving in the fog," and hinted at a cautious approach for December, as reported by Zawya.
Political tensions further complicate the Fed's path. President Donald Trump has publicly criticized Powell's tenure, labeling him "Jerome 'Too Late' Powell," and has hinted at replacing him before his term expires in May 2026, reported by Evrimagaci. The president's push for lower rates aligns with his broader economic agenda but clashes with the Fed's mandate to prioritize price stability and maximum employment.
Market participants now price in a 68% probability of no rate cut at the December meeting, according to updated FedWatch data reported by TradingView. Analysts suggest the Fed may pivot to a wait-and-see stance, with two 25-basis-point cuts expected in 2026. The central bank's next move will hinge on how inflation evolves and whether the government shutdown resolves, enabling the release of critical economic data.
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