Summary:
The Federal Reserve is expected to lower interest rates by a quarter percentage point at its upcoming meeting, with Chair Jerome Powell likely avoiding clear guidance due to growing divisions among policymakers. The focus remains on labor market threats, while softer-than-expected inflation data tempers concerns from inflation hawks. Investors anticipate the rate cut with certainty, but uncertainty remains about the Fed’s future policy direction amid ongoing economic uncertainties and internal debates.
What This Means for You:
- Expect potential market volatility as the Fed navigates its policy decisions and economic uncertainties.
- Monitor inflation trends, particularly in core metrics like services, to gauge future rate decisions.
- Stay informed about the Fed’s balance sheet adjustments, as halting quantitative tightening could impact liquidity and financial markets.
- Prepare for mixed signals from policymakers, as divisions within the Federal Open Market Committee (FOMC) may lead to unpredictable moves in the months ahead.
Original Post:
By Maria Eloisa Capurro
(Bloomberg) — Expectations are set for two things from this week’s Federal Reserve meeting: Officials will lower rates by a quarter percentage point and Chair Jerome Powell will offer little guidance as a growing divide among policy-makers blurs the path ahead.
Powell signalled earlier this month the Federal Open Market Committee remained focused on threats to the labour market. Then, a delayed inflation report published last week came in softer than expected, likely keeping the Fed’s inflation hawks at bay for now.
“The labour data continues to play a larger role in the debate,” said Krishna Guha, head of global policy and central bank strategy at Evercore ISI. As long as officials are comfortable with inflation expectations and the level of price pressures from wages and services, he said, Powell can stay focused on employment and “moving the Fed back to a neutral policy stance.”
The central bank’s rate decision will be published at 2 p.m. Wednesday in Washington, alongside a statement from the committee. Powell will hold a press conference 30 minutes later. The committee won’t release new forecasts, nor rate projections, at this meeting.
Federal funds futures indicate investors see a quarter-point cut as nearly a certainty.
The high likelihood of a rate cut, however, doesn’t mean policy-makers are anywhere near united in how they view the outlook for rates. A large minority, while acknowledging risks to the job market, have continued to voice concerns about inflation.
The consumer price index rose by less than expected in September, but the core measure — which is considered a better guide to inflation’s underlying trend — rose by 3% year over year, a full percentage point above target.
What Bloomberg Economics Says…
“The FOMC is set to cut rates by 25 basis points at the Oct. 28-29 meeting, but what’s less certain is whether the committee will announce an end to Quantitative Tightening (QT). We do expect the FOMC to announce an end to QT, effective in November.”
— Anna Wong.
Some officials also point to stubbornly high price increases in segments of the economy, like services, that should be less affected by tariffs. Moreover, recent threats of new levies against China and Canada have introduced new uncertainties about prices and the economic outlook.
As a result, the committee could prove even more divided now than it was in September, when nine members favoured no more than one additional cut this year.
Against that backdrop, analysts expect Powell to avoid offering clear guidance on what to expect at upcoming meetings. The lack of official economic data — due to the ongoing government shutdown — will only make him more cautious.
“The hope is that eventually the incoming data helps to bridge the gap between the two camps,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank Securities Inc. But as long as the divide persists, he added, Powell will provide “very little signal about December or beyond.”
Fed Governor Stephen Miran, appointed by President Donald Trump to a seat that reopens in February, has signaled he will dissent again in favour of a half-point reduction. Among the remaining voters, Kansas City Fed President Jeff Schmid is seen as a potential dissenter in favour of leaving rates unchanged.
Balance Sheet
Fed watchers also see a growing chance the committee will halt the runoff of Treasury securities from its $6.6 trillion balance sheet at this meeting. Officials have for many months been seeking to shrink their portfolio as much as possible without draining too much liquidity from overnight funding markets.
Powell said earlier this month the central bank may reach that level in the coming months, but money markets have been showing signs of stress in recent weeks.
“Right now, we’re playing a bit with that line between volatility and stress,” said Guneet Dhingra, head of U.S. rates at BNP Paribas. “The risk-management aspect of this, I think, is very clearly suggesting that they need to seriously consider ending” the runoff.
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federal open market committee federal reserve FOMC minutes jerome powell Matthew Luzzetti quantitative tightening Stephen Miran u.s. fed US news
Last modified: October 28, 2025
Extra Information:
Federal Open Market Committee (FOMC) official site – Stay updated on the latest policy decisions and statements. Bloomberg Markets: Rates & Bonds – Track real-time updates on interest rates and bond markets. Investopedia: Federal Reserve Overview – Understand the Fed’s role and functions in the economy.
People Also Ask About:
- What is the Federal Reserve’s target inflation rate? The Fed aims for a 2% inflation rate over the long term.
- How does quantitative tightening affect the economy? It reduces liquidity in financial markets, which can tighten credit conditions.
- Why is the Federal Reserve divided on rate cuts? Policymakers are split between focusing on labor market risks and inflation concerns.
- What is the difference between CPI and core CPI? Core CPI excludes volatile food and energy prices to measure underlying inflation trends.
Expert Opinion:
“The Fed’s current focus on labor market stability, while balancing inflation risks, highlights the delicate tightrope policymakers must walk. The potential halt to quantitative tightening underscores the importance of maintaining liquidity in uncertain economic times,” says Krishna Guha, Evercore ISI.
Key Terms:
- Federal Reserve rate cuts 2025
- Jerome Powell monetary policy guidance
- Quantitative tightening impact on economy
- FOMC inflation and labor market debate
- Federal Reserve balance sheet adjustments
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