In a widely expected move, the Fed voted to cut the federal funds rate by 25 bps, marking the second rate cut this year. Of the 12 voting members, 10 voted in favor of a 25 bps reduction, while Fed Governor Stephen Miran dissented in favor of a 50 bps cut and Kansas City Fed President Jeff Schmid voted for no change.
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The Fed’s decision was in line with CME’s FedWatch tool, which assigned 97.8% odds of a 25 bps reduction prior to the announcement. An unchanged rate carried slim odds of 2.2%.
Fed Signals Sticky Inflation, End of QT
In its Federal Open Market Committee (FOMC) statement, the Fed noted that economic activity has expanded at a “moderate pace” amid slowing job gains and a rising, but still low, unemployment rate. In addition, inflation has increased since the beginning of the year and remains “somewhat elevated.”
Furthermore, the Fed will conclude quantitative tightening (QT), or the act of reducing the amount of money circulating in the economy, on December 1. QT can help combat inflation by slowing the money supply and involves selling government assets or holding them to maturity without reinvesting the proceeds.
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