The FOMC of The Federal Reserve (FED) cut the Intrerest Rate by 25 basis points, but Powell warned that a pause in rate cuts may occur in December.

The U.S. Federal Reserve announced its second rate cut for 2025, lowering the interest rate by another 25 basis points to a range of 4.0% to 4.25%. However, Fed Chairman Powell poured cold water on the optimism during the post-meeting press conference, suggesting that there would be no rate cut in December, and revealing that Fed officials have “dramatically different views” on whether there should be another rate cut in December. The positive news is that quantitative tightening (QT) is coming to an end.

FOMC Meeting Decision: The Federal Reserve (FED) Cuts Interest Rates but Hints at a Pause

In a recent press release, the committee announced a reduction in the federal funds interest rate range from 4.25% to 4.50% down to 4.0% to 4.25%. This interest rate cut by The Federal Reserve (FED) is another reduction following the 25 basis point cut in September, marking the official entry of the Federal Reserve into a rate-cutting cycle. This ongoing monetary easing policy aims to support economic growth while closely monitoring inflation dynamics.

The Federal Reserve (FED) statement said that almost all committee members voted in favor of cutting interest rates, with only Stephen Milan voting against it because he wanted a larger cut of 50 basis points; Jeffrey R. Schmid supported maintaining the current interest rate. This voting divergence shows that there are still differing views within the FOMC regarding the pace and extent of interest rate cuts.

Analysts believe this indicates that policymakers are trying to support economic growth while focusing on inflation as Powell's term comes to an end. Previously, data released by the U.S. Bureau of Labor Statistics showed that the U.S. inflation rate in September rose 3% year-on-year, slightly lower than the previously predicted 3.1%. This suggests that although inflationary pressures have eased, they remain above the Federal Reserve's long-term target of 2%.

Powell pours cold water: December rate cut is far from a done deal

(Source: Polymarket)

The major news from the post-meeting press conference changed market expectations. Powell hinted that there would be no interest rate cut in December and revealed that The Federal Reserve (FED) officials hold “completely different views” on whether another rate cut should occur in December. Powell clearly stated, “Further interest rate cuts at the December meeting are not a done deal, far from it.”

This statement contrasts sharply with market expectations. Data from Polymarket shows that nearly 89% of traders anticipated another rate cut before the end of the year ahead of the FOMC meeting. Powell's remarks suggest that this highly consistent expectation may come to naught, and the December FOMC meeting may opt to stand pat and observe further changes in economic data.

Powell emphasized that the views of Federal Reserve officials are “completely different,” suggesting significant divisions within the FOMC regarding the path of interest rate cuts. Hawkish members may be concerned that continuing to lower rates while inflation has not yet returned to the 2% target could reignite inflationary pressures. Dovish members, on the other hand, believe that the weak performance of the labor market and slowing economic growth necessitate more aggressive monetary easing support.

This kind of policy uncertainty is a double-edged sword for the market. On one hand, a pause in interest rate cuts may be interpreted as the Federal Reserve believing the economy is strong enough and does not require further stimulus, which could be positive for the stock market. On the other hand, if the liquidity easing expected by the market fails to materialize, risk assets may face disappointing sell-offs.

QT Ends: Major Intrerest Rate Benefit from Liquidity Release

Despite the bleak outlook for interest rate cuts in December, Powell announced the end of the Federal Reserve's balance sheet reduction plan (QT), which is a significant positive development that the market has long anticipated. Quantitative tightening refers to the Federal Reserve reducing the size of its balance sheet by no longer purchasing maturing government bonds and mortgage-backed securities, thereby withdrawing liquidity from the market. The end of QT means that this liquidity contraction will cease.

QT ending is particularly important for the cryptocurrency market. Risk assets such as Bitcoin are extremely sensitive to the liquidity environment; when market liquidity is abundant, funds are more likely to flow into high-risk, high-return assets. Historical data shows that when The Federal Reserve (FED) ends a phase of quantitative tightening, Bitcoin and cryptocurrencies often enter a significant upward trend due to increased market liquidity.

Both JPMorgan Chase and Goldman Sachs predict that The Federal Reserve (FED) will end quantitative tightening (QT), and this forecast has now been officially confirmed. Although a rate cut may not occur in December, the end of QT itself is a form of monetary easing, halting the ongoing contraction of liquidity and providing stability to the market.

This may be one of the last major policy moves during Jerome Powell's tenure as FOMC Chairman. U.S. Treasury Secretary Scott P. Amundsen confirmed that President Donald Trump is considering five candidates to replace Powell. Powell's term will expire at the end of the year. The decision made in December is likely to influence the Federal Reserve's policy direction in 2026.