Fed's Rate Cut Split Reflects Deepening Internal Divide on Inflation vs. Jobs

The Federal Reserve on Wednesday delivered its second consecutive 25-basis-point rate cut, lowering the federal funds rate to a range of 3.75%-4.0% to support a slowing labor market, according to a Business Standard report. The decision, announced after a closely watched Federal Open Market Committee (FOMC) meeting, reflects growing concerns over employment risks amid a broader economic slowdown. Fed officials also announced the end of its balance-sheet runoff program by December 1, a move aimed at stabilizing financial reserves, the Business Standard report said.

The rate cut followed a 10-2 vote, with dissenting voices including newly confirmed Governor Stephen Miran, who favored a 50-basis-point reduction, and Kansas City Fed President Jeff Schmid, who opposed any cut, the Business Standard report added. Chair Jerome Powell emphasized a data-driven approach in his post-meeting press conference, noting that the government shutdown had limited access to key economic indicators, as reported in a Nasdaq article. Despite the cut, the Fed reiterated that inflation remains "somewhat elevated" at 2% over the longer term, according to the Business Standard piece.

Markets initially reacted negatively, with major indexes dipping following the announcement, according to a Nasdaq market recap. The Nasdaq and S&P 500 partially rebounded, but the Russell 2000 continued to fall, signaling mixed investor sentiment. Powell's insistence that a December rate cut is "not a foregone conclusion" tempered expectations, as reflected in the CME Group's FedWatch Tool, which now shows a 33.3% chance of a pause, as the earlier Nasdaq article noted.

The Fed's decision to halt balance-sheet runoff aligns with Powell's acknowledgment that reserves are "ample" and that future policy adjustments may require expanding the central bank's holdings, as Reuters reported. This shift marks a reversal from years of asset sales, as the Fed now prepares to reinvest expiring securities into Treasury bills, the Nasdaq market recap added.

Internal divisions within the FOMC were further highlighted by Dallas Fed President Lorie Logan, who argued that stubborn inflation justified holding rates steady, according to a Yahoo report. Similarly, Fed Governor Christopher Waller criticized Powell's reliance on the "fog" narrative—referring to data gaps caused by the government shutdown—and urged continued easing, according to a Benzinga article. These debates underscore the Fed's balancing act between supporting employment and curbing inflation.

Looking ahead, the Fed faces a critical test with the upcoming non-farm payrolls report, which will provide clarity on labor market trends, as noted in the Nasdaq article. Powell's comments suggest the central bank is prepared to adjust policy based on incoming data, though uncertainty remains high. The next FOMC meeting, scheduled for December 9-10, will likely see further discussions on whether to cut rates again, with projections indicating nine of 19 policymakers expect no more than one additional cut this year, the Business Standard report said.

As the Fed navigates a fragile economic landscape, its actions—and the diverging views within its ranks—will shape the trajectory of U.S. monetary policy in the coming months.