In Short:
– Jerome Powell stated further interest rate cuts are uncertain after recent decreases, aiming to manage market expectations.
– The Fed ended its balance sheet reduction due to lending market disruptions and mixed views on future rate cuts among officials.

Federal Reserve chairman Jerome Powell indicated that further interest rate cuts are not guaranteed following the recent decrease. In a press conference, he stated that a further reduction in December is “far from” certain. His comments aimed to temper market expectations, where the likelihood of another cut was previously estimated at over 90 per cent.In response to Powell’s remarks, yields on the two-year treasury rose, and traders adjusted their expectations, now estimating a 60 per cent chance of a December reduction. Recently, the Federal Open Market Committee voted 10-2 to lower the federal funds rate target range to 3.75-4 per cent, in response to concerns about the labour market.

The Fed has also announced an end to its balance sheet reduction efforts due to disruptions in short-term lending markets. Since 2022, the bank has reduced its asset holdings by over $US2 trillion following aggressive purchases aimed at stabilising the economy after the pandemic.

Policy Divisions

Recent post-meeting statements highlighted mixed views among Fed officials about the pace of future rate cuts. Powell remarked that uncertainty surrounding economic conditions necessitates a cautious approach. Ongoing government shutdowns have limited policymakers’ access to crucial economic data, complicating decision-making.

Recent labour market developments show slowed job gains, raising concerns about employment. The Fed is also cautious about reducing rates too quickly due to inflation remaining above their 2 per cent target, reflecting a complex economic landscape. Policymakers have struggled with decisions amid data limitations from the government shutdown, impacting their assessments of inflation and economic indicators.