On October 29, 2025, the U.S. Federal Reserve executed its second consecutive interest rate cut, lowering the federal funds rate by 25 basis points to a range of 3.75% to 4%. This move, widely anticipated by analysts and traders, was aimed at bolstering a softening labour market and supporting economic growth amid persistent inflation and political gridlock.
The decision came after a two-day Federal Open Market Committee (FOMC) meeting, where 10 out of 12 members voted in favour of the cut. Notably, dissenting votes came from Fed Governor Stephen Miran who advocated for a larger half-point cut and Kansas City Fed President Jeffrey Schmid, who preferred no cut at all. Their opposing stances underscore the deep divisions within the Fed, reflecting the complexity of the current economic landscape.
Why the Fed Cut Rates Again
The rationale behind the rate cut was multifaceted. The U.S. economy is grappling with elevated inflation, which rose to 3% year-over-year in September, and a cooling labour market, with job gains slowing and unemployment edging up. Additionally, the ongoing government shutdown has disrupted the publication of key economic data, leaving policymakers to rely on limited indicators.
Fed Chair Jerome Powell emphasized that the central bank is navigating “strongly differing views” among its members. He acknowledged that while inflation remains above target, the risks to employment have increased, prompting the Fed to act pre-emptively to support hiring and consumer spending.
Market Reaction: Optimism Turns to Caution
Initially, markets responded positively to the rate cut, buoyed by expectations of continued monetary easing. However, Powell’s post-meeting comments quickly tempered that optimism. He stated that a December rate cut is “not a foregone conclusion”, adding that many Fed officials favour waiting another cycle before considering further easing.
This cautious tone rattled investors. The Dow Jones Industrial Average reversed earlier gains, falling by 0.2%, while the S&P 500 slipped 0.3%. The Nasdaq managed a modest 0.1% uptick, largely supported by Nvidia’s record-setting surge. Meanwhile, the 10-year Treasury yield jumped by 7 basis points, climbing back above 4%, which could exert upward pressure on mortgage rates in the near term.
Mortgage and Consumer Lending Impact
Despite Powell’s caution, mortgage rates had already declined in anticipation of the rate cut. According to Freddie Mac, the average 30-year fixed mortgage rate hit a one-year low of 6.19% last week. However, further declines are uncertain. Danielle Hale, Chief Economist at Realtor.com, noted that “today’s dissenting votes show that the Fed is unlikely to see a majority support faster rate cuts absent a more substantial slowdown in economic activity”
Auto loans, credit cards, and other consumer lending products tied to the federal funds rate may also see modest relief, though the pace of easing will depend heavily on future Fed decisions and inflation trends.
Political Undercurrents and Fed Independence
The Fed’s decision also unfolded against a backdrop of political tension. President Donald Trump has been vocal in his push for aggressive rate cuts, reportedly favouring reductions totalling 3 percentage points. His recent appointee, Stephen Miran, has consistently voted for deeper cuts, aligning with Trump’s stance.
Meanwhile, speculation continues about Trump’s efforts to replace Powell when his term ends in May 2026. Though not directly addressed during the meeting, these political dynamics add another layer of complexity to the Fed’s policy calculus.
What is Next?
Looking ahead, the Fed’s December meeting will be pivotal. While markets had priced in another quarter-point cut, Powell’s remarks have introduced uncertainty. Traders have lowered the odds of a December cut from 90% to 67%, according to CME Group’s FedWatch tool.
The Fed also announced it will end its quantitative tightening program, the reduction of its asset holdings on December 1, signalling a shift toward a more accommodative stance. However, without clear guidance on future rate moves, investors are left to interpret mixed signals.
Final Thoughts
The October rate cut reflects the Fed’s delicate balancing act: stimulating a weakening labour market without stoking inflation. While the move was expected, Powell’s refusal to commit to further easing has unsettled markets, highlighting the uncertainty that lies ahead.
For investors, borrowers, and policymakers alike, the message is clear: monetary policy remains data-dependent, and the path forward will hinge on how inflation, employment, and political pressures evolve in the coming weeks.