Fed Navigates Uncertainty as Data-Dependent Rate Decisions Hindered by Shutdown

FXStreet report.>

The U.S. Federal Reserve's recent decision to lower interest rates by 25 basis points has led to a significant shift in market forecasts for additional rate cuts in 2025. After the policy meeting on October 28-29, the likelihood of a rate cut in December is now at 69.8%, a notable drop from the near certainty seen earlier this year, according to

. The Fed's firm stance and a split vote among Federal Open Market Committee (FOMC) members have lessened expectations for another cut, with Chair Jerome Powell stating that "another policy rate decrease in December is not guaranteed," as mentioned by the .

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The Fed's move to set rates between 3.75% and 4.00% was marked by a deeply divided FOMC. Governor Stephen Miran preferred a larger 50-basis-point cut, while Kansas City Fed President Jeff Schmid opposed any reduction, according to FXStreet. This marks the third time since 1990 the committee has seen such disagreement, highlighting the challenge of managing inflation risks while the job market slows. Powell has repeatedly cautioned about "potential risks to employment," prompting investors to lower the odds of a December cut to 70%, based on CME FedWatch figures.

The Fed's policy adjustment comes amid ongoing economic uncertainty. A one-year trade agreement between the U.S. and China, announced just before the rate decision, has slightly improved risk appetite but hasn't eased persistent inflation. The deal, which includes tariff reductions and relaxed export controls, has helped reduce global trade friction, yet core inflation remains at 2.7%, above the Fed's 2% goal, as reported by Hurriyet Daily News. At the same time, Switzerland's economy has shown signs of recovery, with the October ZEW Expectations Index rising to -7.7, illustrating uneven global growth patterns, according to FXStreet.

Zawya.>

The Fed's latest action also signals the conclusion of its quantitative tightening (QT) initiative, with the reduction of securities holdings set to end on December 1, per Hurriyet Daily News. This step is intended to ensure sufficient liquidity as the central bank operates with limited economic data due to the ongoing U.S. government shutdown. Powell compared the current policy environment to "driving through fog" and indicated a cautious stance for December, as covered by Zawya.

Evrimagaci.>

Political factors are adding further complexity to the Fed's decisions. President Donald Trump has openly criticized Powell, calling him "Jerome 'Too Late' Powell," and has suggested he may replace him before his term ends in May 2026, according to Evrimagaci. While the president's push for lower rates fits his economic strategy, it conflicts with the Fed's responsibility to maintain stable prices and full employment.

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Currently, markets estimate a 68% chance that rates will remain unchanged at the December meeting, based on the latest FedWatch data cited by TradingView. Experts believe the Fed may adopt a more cautious, wait-and-see approach, with two 25-basis-point cuts anticipated in 2026. The central bank's future decisions will depend on inflation trends and whether the government shutdown ends, allowing for the release of essential economic reports.