Forward Guidance Less Clear After October Rate Cut

The FOMC moved forward with another 25-basis-point rate cut on Oct. 29. That cut was expected, but the forward outlook is a bit murkier.

Heading into the meeting, the fed funds futures market was pricing 100% probability of a December rate cut, followed by another 100 basis points of cuts in 2026. In a speech before the annual National Association for Business Economics (NABE) conference on Oct. 14, Jerome Powell had an opportunity to push back on market pricing, but the chair of the Federal Reserve instead focused on the role and size of the Fed’s balance sheet.

Powell then struck a notably different tone at the press conference following the Oct. 29 FOMC meeting.

“In the committee’s discussions at this meeting, there were strongly differing views about how to proceed in December,” Powell said in his opening remarks. “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”

The updated Summary of Economic Projections (SEP) released following the Sept. 17 FOMC meeting revealed a wide range of opinions on where the federal funds rate would end 2025, as well as the long-run neutral rate. In the speeches that followed that meeting, more dovish Fed leaders expressed concern that recent labor market softening was a harbinger for weaker GDP and reduced inflation in the months ahead. On the other hand, Fed hawks characterized the September cut — and the likely cut on Oct. 29 — as insurance against further weakness in the labor market. At the same time, they expressed hesitancy about doing much more policy easing amid ongoing inflation uncertainty.

This debate was clearly alive and well during the Oct. 29 meeting, which Powell even suggested should be clearer when the minutes are released. During the press conference, Powell said he believes most of the slowdown in hiring is more attributable to supply-side factors (labor participation and immigration) as opposed to the demand side of the equation (business investment). Fed policy typically has less impact on labor supply and more on labor demand. This is likely a critical factor in the current outlook of Fed hawks.

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Jason Haley joined ALM First in 2008 and is the firm’s chief investment officer. He heads ALM First’s Investment Management Group (IMG), which is responsible for leading the investment process and investment theme development. Haley also oversees all capital markets activities, including portfolio management, trading, market research and commentary, and execution of hedging and funding strategies for the firm’s depository clients. He holds an MBA with a concentration in finance and a BBA with a concentration in marketing, both from The University of Mississippi.

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