WASHINGTON, 30 October 2025 — The U.S. Federal Reserve has lowered its benchmark interest rate by a quarter of a percentage point to 3.75%–4.00%, but Chair Jerome Powell warned that the central bank may slow future moves as policymakers “drive in the fog” without access to critical government data during the ongoing federal shutdown.
The decision, backed by a 10–2 vote, was aimed at supporting a cooling labour market while inflation remains above target.
Yet Powell said the data blackout and a widening policy divide within the Fed make any additional cuts this year uncertain.
“We’re going to collect every scrap of data we can find, evaluate it and think carefully about it. And that’s our job,” Powell told reporters after the Fed’s two-day policy meeting.
“If you asked me could it affect the December meeting, I’m not saying it’s going to — but yeah, you could imagine that. You know, what do you do if you’re driving in the fog? You slow down.”
A Divided Central Bank
Powell acknowledged “strongly differing views” among Fed officials over whether to keep easing policy, with “a growing chorus” arguing to pause and reassess conditions.
Two policymakers dissented in opposite directions, Governor Stephen Miran seeking a deeper cut, while Kansas City Fed President Jeffrey Schmid wanted no change, marking only the third such split since 1990, according to the St. Louis Fed.
“A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it, policy is not on a preset course,” Powell said, underscoring that officials remain data-dependent.
Financial markets pared bets on another rate cut at the December 9–10 meeting, with traders now assigning roughly two-to-one odds against further easing.
The S&P 500 ended the day flat after giving up earlier gains, reflecting investor caution following Powell’s comments.
Inflation Pressures and Policy Outlook
Powell described the current rate stance as “modestly restrictive”, adding that it continues to exert downward pressure on prices even as inflation edges higher due to new Trump-era import tariffs.
The Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, has risen from 2.3 percent in April to 2.7 percent in August, the most recent official estimate before the shutdown halted new data releases.
Fed projections issued in September had expected inflation to reach around 3 percent by year-end.
“It would not be appropriate to just ignore or assume away the inflation issue,” Powell said. “At the same time, the risk of higher, more persistent inflation has declined significantly since April.”
He added that the Fed’s aim is to bring inflation sustainably to its 2 percent target while keeping the labour market “in a good place.”
Data Gaps and Economic Mixed Signals
The budget standoff between the Trump administration and Congress, now in its second month, has left the government unable to produce key reports on jobs and inflation, leaving policymakers dependent on private surveys and anecdotal evidence.
Powell said the U.S. economy continues to show mixed signals, consumers at the lower end of the income scale are feeling strain, while higher-income households continue to spend.
Business investment remains solid but has not translated into strong job growth.
Fed Adjusts Balance Sheet to Ease Liquidity Pressures
To stabilise money markets, the Fed also announced it will restart limited purchases of U.S. Treasury securities beginning 1 December 2025, keeping its US$6.61 trillion balance sheet roughly steady while reinvesting proceeds from maturing mortgage-backed assets into short-term Treasury bills.
Powell said the move aims to prevent liquidity shortages as the Fed winds down its balance-sheet drawdown programme.
Measured Path Ahead
Despite the uncertainty, Powell characterised the quarter-point rate cut as a “solid” decision to support gradual cooling in the labour market.
However, he reiterated that the Fed would move carefully in December and beyond.
“We are trying to get to the end of this cycle with the labour market in a good place and with inflation on its way to 2 percent or at 2 percent,” he said.
