THE United States Federal Reserve has lowered its benchmark interest rate by a quarter of a percentage point to a range of 3.75% to 4.00%, while signalling deep divisions among policymakers and uncertainty over further cuts this year due to a continuing lack of federal economic data.
The rate cut, approved by a 10–2 vote, marks the second consecutive reduction in as many months and was aimed at cushioning a softening labour market.
However, Federal Reserve Chair Jerome Powell cautioned that the central bank would proceed carefully amid “strongly differing views” within the committee and a shortage of official data caused by the prolonged government shutdown.
“We’re going to collect every scrap of data we can find, evaluate it and think carefully about it. That’s our job,” Reuters reported Powell telling reporters following the two-day policy meeting.
“If you asked me, could it affect the December meeting, I’m not saying it’s going to, but yes, you could imagine that. You know, what do you do if you’re driving in the fog? You slow down.”
The Federal Reserve’s decision was made in the absence of up-to-date government statistics on employment and inflation, both critical to monetary policy decisions.
Powell said the data blackout, caused by the ongoing budget standoff between President Donald Trump’s administration and Congress, had forced the central bank to rely more heavily on private-sector figures and internal surveys.
Beyond the data gaps, Powell acknowledged a widening policy divide within the Fed. “There were strongly differing views about how to proceed in December,” he said, adding that “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.”
Fed Governor Stephen Miran dissented, favouring a deeper cut, while Kansas City Fed President Jeffrey Schmid opposed any reduction, citing persistent inflation risks.
It was only the third time since 1990 that Federal Reserve policymakers had dissented in opposite directions — an indication of the growing uncertainty over the economic outlook.
Despite the discord, Powell described the decision as a “solid” endorsement of easing policy to support a “gradually cooling labour market”.
He noted that while inflation is expected to rise temporarily due to new import tariffs introduced by the Trump administration, it is still projected to trend back towards the Fed’s 2% target.
“I think it would not be appropriate to just ignore or assume away the inflation issue; at the same time, I think the risk of higher, more persistent inflation has declined significantly since April,” he said.
The Fed also announced that it would halt its balance sheet drawdown, keeping its roughly US$6.61 trillion in holdings steady from December and reinvesting proceeds from maturing mortgage-backed securities into Treasury bills to maintain liquidity in money markets.
Financial markets reacted cautiously to Powell’s remarks, with investors reducing bets on another rate cut at the 9–10 December meeting. The S&P 500 ended the day flat after earlier gains, reflecting both relief over the rate cut and concern about future policy uncertainty. - October 30, 2025
