1. To no surprise, the FOMC announced a rate cut at this month’s meeting despite not having key monthly economic reports – such as the September employment and retail sales reports – due to the government shutdown. What were some of the reasons behind this rate cut, and did Chair Powell say anything that may have surprised you in his comments?
Kathy: The FOMC delivered a widely expected 25 basis point rate cut and announced an end to quantitative tightening, signaling a shift toward less restrictive policy. While the committee remains divided—with hawks urging a pause due to resilient growth and inflation risks, and doves emphasizing labor market weakness and support for lower-income households—Chair Powell cautioned that a December rate cut is not guaranteed. This deepening split reflects growing uncertainty around the economic outlook and the Fed’s path forward.
2. How have investors reacted to Fed policy this cycle, its rationale, and how has that relationship developed through time?
Mark: Despite shifting expectations around Fed policy, markets, especially equities, have shown muted reactions, suggesting growing investor confidence in the Fed’s approach. Much of the recent market strength appears tied more to speculation around the end of quantitative tightening than to rate cuts themselves.
3. Given the improved clarity on Fed policy, how do you see the market developing over the next few months?
Mark: Recent market strength reflects a convergence of technical momentum, fundamental resilience, and short-term stimulative factors. While a more dovish Fed and easing financial conditions have supported risk-on sectors like small caps and cyclicals, earnings momentum, consumer spending, and GDP growth have added fundamental tailwinds. However, inflation surprises or labor market weakness, especially amid data disruptions from government shutdowns, remain key risks to watch.
4. The FOMC meets in December for the final meeting of 2025. Could an additional rate cut happen in December, and what’s on the horizon for 2026?
Kathy: Chair Powell acknowledged the growing divide within the FOMC but emphasized that decisions will ultimately hinge on incoming data, even if government shutdowns limit access to official reports. The Fed will rely on private sector indicators, regional surveys, and the Beige Book to assess economic conditions. While a December rate cut remains possible due to labor market softness and disinflation in housing, rising hawkish resistance and leadership changes in 2025 could complicate consensus and policy direction.
Explore these questions and hear the full responses from our team in the full podcast, available here.
