BY: Matthew Kimbrough
Portfolio Manager
The Decision
At the conclusion of today’s FOMC meeting, the Fed Funds rate was reduced by 25 basis points, lowering the current range to 4.00%–4.25%. This is the fourth cut in the current easing cycle, following the three consecutive cuts (totaling 100bp) that were announced from September through December of 2024. Today’s decision was once again NOT unanimous. Stephen Miran voted against this action and would have preferred to lower the target range for the Fed Funds rate by 50 basis points.
Recent and Potential Changes to the Composition of the FOMC
Stephen Miran, active Chair of the White House Council of Economic Advisors, was nominated and just recently approved to replace Adriana Kugler on the Federal Reserve’s Board of Governors. Miran oddly plans to merely take an unpaid “leave of absence” from the White House until his (formerly Kugler’s) term expires in January, but he has also stated that he will quit his job as a White House aide if he is appointed to a full 14-year term at that point.
Meanwhile, President Trump is still attempting to remove Fed Governor Lisa Cook from her seat on the FOMC due to allegations of mortgage fraud; however, the allegations and the “removal for cause” process are still working their way through the legal system. As Cook was a recent Biden appointee to the Board of Governors, her 14-year term otherwise wouldn’t be set to expire until January of 2038.
Fed Chair Jerome Powell’s own term is set to expire in May 2026, and his successor has yet to be named. Traditionally, an acting Chair will also step down from the Board of Governors after their term as the Chair expires, but the possibility also exists of Powell remaining on the FOMC as a Governor until that 14-year term ends, which would be January 2028.
A Shift in Focus for the FED?
As far as economic data goes, the Fed finds itself in a bit of a conundrum—inflation really isn’t inching its way steadily toward their 2% goal (in fact, core PCE is up from 2.7% to 2.9% over the past two months, and core CPI is up from 2.9% to 3.1%). Simultaneously, the employment situation is worsening. There was a massive amendment to previously reported payrolls figures in early August, and September’s NFP data also came in below expectations. With this in mind, and assuming that the recent inflationary hiccups are in fact transitory, a 25bp rate cut at this juncture would seem to be an effective acknowledgment that the maximum employment side of the Fed’s dual mandate has now taken precedence. U-3 unemployment has risen to 4.3% and is up 0.2% in the last two months.
The Statement
This meeting’s statement contained several amendments, which are highlighted in the chart below.
New Economic Projections
The most significant changes to (or facets of) this quarter’s Statement of Economic Projections (SEP) document have been highlighted below:
1| The near-term median Dot Plot projection shows two more 25bp cuts this year (a total of 75bp of rate cuts in 2025), and still only one 25bp rate cut in 2026 and 2027.
2| Unemployment projections held steady at 4.5% in 2025.
3| Core PCE inflation expectations were held steady at 3.1% in 2025 but rose slightly for 2026.
4| Real GDP is expected to be 1.6% for 2025, 0.2% higher than projected in June.
Quotes from Powell’s Press Conference
Today’s rate cut was characterized as a “risk-management cut” by Jerome Powell during his press conference.
In his opening statement before the press conference, Powell noted that “with downside risks to employment having increased, the balance of risks has shifted.” He also said that “he could no longer say that the labor market is solid.” In fact, both the supply of workers and the demand for workers have fallen sharply over the last several months.
When asked directly about the range of views about the future path of monetary policy amongst Committee members, Powell commented that a wide dispersion of views at this time was both “understandable and natural.” When looking at the individual dots which contain year-end projections for the Fed Funds rate in 2025, there were actually nine FOMC members who projected two or less total cuts this year, nine that projected exactly three 25bp cuts, and one outlier which tipped the scales in favor of a three-cut average projection.
Powell had to dodge several questions related to President Trump, Treasury Secretary Bessent, and Fed Governor Lisa Cook during the press conference. When asked about his own plans and the conditions that would lead to him leaving the Fed in May of 2026, he also replied, “I have nothing new on that for you today.”
The Market Reaction
Treasury yields on the front end of the curve were up around 4bp prior to the announcement of the Fed’s decision today and remained up 4–5bp afterward.
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