From the Desk

As expected, the U.S. Federal Reserve cut rates this week. Usually, Fed members are a united crew. But this meeting had one member wanting more cuts and two preferring no change. Chairman Jerome Powell was quick to point out, when he caught up with the press, that while there was some divergence on the vote they all agreed that inflation was too high and the labor market had softened. Therefore, the decision came down to how they weighed those risks.

The Fed also rolled out its updated economic projections. But there was no big shift from its September view. There is a clear majority of Fed members who don’t expect the long-term Federal Funds Rate to drop below 3%. Also, most expect inflation to neatly return to 2% by 2028.

In other news, the Fed announced it will start buying short-term bonds to stabilize overnight rates. The Fed is a key agent in helping to ensure ample liquidity in the financial system or, more directly, that short-term borrowing rates remain in line with Fed targets. Over the last several weeks there has been more volatility in the repo market than usual and the Fed is looking to dampen that.

Overall, Powell kept communication crisp. He emphasized the Federal Funds Rate is within the broad neutral range, which sets up a wait-and-see approach. But his upbeat take on growth and productivity was constructive and a tonic for risk-taking. 

Sources: Bloomberg, Financial Times, 2025.