Markets reset solid expectations that the Federal Reserve would continue to lower interest rates this year after a divisive meeting that cut rates as anticipated but cemented unexpected doubts about the future.

The Federal Open Market Committee voted Oct. 29 to slash the benchmark Federal Funds Rate target to 3.75% to 4.00%, a quarter percentage point.

The data-driven independent central bank depends on leading economic indicators, especially those focused on jobs and inflation, to set monetary policy.

But most of the September numbers were missing due to the government shutdown, which shows no signs of abating.

These missing data points are essential for the Fed’s dual mandate: maximum employment and stable prices.

Still, market watchers made strong assumptions going into the October meeting that the shutdown would not impact a series of multiple rate cuts, including another quarter of a percentage point in December and more in early 2026. 

Fed Chair Jerome H. Powell shot down those suppositions in a press conference after the FOMC meeting, which showed a surprising divide among the committee members.

Federal Reserve Chairman Jerome H. Powell reset market expectations for a December interest rate after the Federal Open Market Committee lowered the Federal Funds Rate by a quarter percentage point on Oct. 29, 2025.

Anna Moneymaker/Getty Images

The Fed balances jobs, inflation and interest rates

The Consumer Price Index (the only leading indicator that reported September figures)) came in cooler than expected.

Without fresh data, the Fed risks misjudging the economy’s trajectory.

The FOMC’s decision reflects the dual-mandate tension: controlling inflation without derailing employment. 

Related: Shutdown clouds Federal Reserve interest rate cut decision

“We have one tool and we can’t do both at once,” Powell told reporters after the meeting. 

While inflation remains above the Fed’s 2% target, mounting evidence suggests that the labor market is weakening.

“Available evidence shows unemployment appears to have risen,” Powell said.

Two FOMC members dissent from October interest rate cut

Fed Governor Stephen I. Miran voted against the quarter percentage point cut in favor of a half percentage point. 

Miran has been vocal since joining the Fed in September that the economy needs quick, jumbo cuts to stave off stagflation or a recession, echoing President Donald J. Trump’s position.

Kansas City Fed President Jeffrey R. Schmid, a monetary hawk, preferred no change to the target range for the federal funds rate.

Powell resets December expectations with three words

Powell referred to the dissents as “strongly differing views about how to proceed,” adding that there is “no risk-free path” to monetary policy.

As far as a December rate cut is concerned, the chair said it was “not a foregone conclusion.”

“Far from it,” Powell said.

He cited the missing government data and differing risk appetites as the major factors.

Powell’s hawkish comments reset market expectations for December

After Powell’s remarks, the widely respected CME Group FedWatch Tool sank to a 67.8% likelihood of another quarter percentage point in December.  

Mike Sanders, the head of fixed income at Madison Investment, said, “Powell again created flexibility ahead of the next Fed meeting and reset market expectations.”

“The market-implied path is now much less aggressive, with the front end of the yield curve sold off more than the back end,” Sanders said.

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“We expect to see more volatility in interest rates in the coming months. Given how intermediate yields had already fallen ahead of the meeting on market expectations, that part of the yield curve could face upward pressure,’’ he said. “We think any meaningful movement in the long end will be more of a 2026 story, given lingering tariff-related pressures on inflation.”

Matthew Pallai, chief investment officer at Nomura Capital Management, said given the FOMC’s elevated concerns on the inflation and employment fronts, “There is a high likelihood this is the last of the 2025 cuts. The government shutdown up until this point has not had a dramatic impact on the Fed’s ability to navigate in a data-dependent manner, but should things continue for a few weeks or more, this will start to become a pressing concern.”

He added, “Our base case assumption is that we do not get another rate cut this year, and see at least two cuts next year,” both a quarter percentage point each.

The next FOMC meeting is Dec. 9-10. 

Related: Federal Reserve interest rate cut looms