Rate Cut on Tap, But Powell's Presser Could Slow Future Easing

The U.S. Federal Reserve is poised to cut interest rates by 25 basis points at its two-day policy meeting, lowering the fed funds rate to 3.75-4.00%, according to a MarketScreener preview. The decision, announced on October 30, comes amid a backdrop of weak labor market data, a prolonged government shutdown, and growing concerns about inflation risks. While the rate cut is widely anticipated, the post-meeting press conference by Fed Chair Jerome Powell could introduce a "hawkish surprise," with analysts closely watching for signals on the pace and duration of future easing, according to the Manila Times report.

The Fed's move follows weaker-than-expected inflation data and persistent labor market softness, with private sector indicators like the ADP and ISM reports highlighting ongoing employment challenges noted in the MarketScreener preview. Analysts at Allianz Research and Bank of America have both emphasized that labor market weakness remains the central bank's top priority, even as inflation remains above the 2% target, as highlighted by Yahoo Finance. The government shutdown, now in its fourth week, has delayed key economic data releases, forcing the Fed to rely on alternative metrics to assess economic conditions, according to the Bond Buyer.

Markets are pricing in a near-certain rate cut this week, with the CME FedWatch tool showing a 98.3% probability, according to TradingView. A follow-up cut in December is also priced in, though uncertainty looms over the Fed's stance on quantitative tightening (QT). While some economists, including EY's Gregory Daco, expect the central bank to maintain flexibility on future cuts, others like J.P. Morgan analysts predict the Fed may announce an end to QT at the December meeting, as previously reported by the Manila Times and the Bond Buyer.

The press conference will be pivotal, as Powell is expected to address the balance of risks between inflation and employment. Recent comments from former Fed officials, such as Loretta Mester, suggest the central bank remains cautious about upside inflation risks, despite the current rate-cut trajectory reported by the Manila Times. Meanwhile, the Trump-Xi trade talks and the broader global economic environment add layers of complexity, with U.S.-China tensions and tariff policies influencing market sentiment, as noted by Yahoo Finance.

Investors will also scrutinize the Fed's guidance on future monetary policy. While the market is pricing in two more rate cuts in 2025 and up to three in 2026, a TradingView analysis noted that Powell's rhetoric could sway expectations. A dovish tone might bolster risk assets, while a more hawkish stance could trigger volatility in bonds and equities. The S&P 500 has surged to record highs in anticipation of the cuts, driven by optimism over trade developments and resilient tech earnings, according to the TradingView analysis.

The Fed's decision will also have ripple effects on global markets. The Bank of England (BoE) faces heightened rate-cut expectations, with traders assigning a 68% probability to a December easing, according to FXStreet. Meanwhile, the European Central Bank and the Bank of Japan will be in focus later this week, with their policy decisions potentially shaping cross-asset flows, as discussed in the MarketScreener preview.