Fed's Double-Edged Sword: 25bps Cut & QT Halt Clash with Powell's Hawkish Pushback

Delivering its second straight interest rate cut of 2025, the Federal Reserve reduced the federal funds rate by 25 basis points to a target range of 3.75%-4.00%. Ten of twelve FOMC members backed the decision, which came without an updated dot plot as the Summary of Economic Projections is only issued four times a year. Important opponents included Stephen Miran, who supported a deeper 50 basis point reduction, and Jeffrey Schmid, who wanted to keep rates constant.

Moreover, the Fed said it would halt a multi-year $2.5 trillion decrease of its balance sheet by December 1, 2025, thereby ending its quantitative tightening (QT) policy. Going ahead, mature mortgage-backed assets will be reinvested in short-term Treasury bills, therefore denoting a change in balance sheet policy. But Fed Chair Jerome Powell adopted a hawkish attitude during his news conference, challenging market anticipations for a December rate drop and stressing uncertainty about next policy decisions.

The mixed signals alarmed markets. Though the rate cut and end of QT were meant to bring clarity, Powell's warning against further cuts confused. His hawkish approach unnerved investors, who cut back on early gains to mirror the uncertain road ahead for the Fed.