29 October 2025
If you are covering the Federal Reserve’s decision to lower interest rates and stop its quantitative tightening from December, please find below a comment from Stuart Clark, portfolio manager at Quilter:
“Despite the government shutdown cutting off vital data to the Federal Reserve, it has proceeded to cut interest rates by a quarter of a percentage point. This takes the target funds to under 4% for the first time in three years and the first back-to-back rate cut in nearly a year. It would appear as if the Fed is ready to get back on the rate cutting path, despite it being fraught with risks.
“The Fed is facing a number of idiosyncratic risks that other developed markets are not experiencing. The government shutdown continues and shows no sign of being resolved. We eventually got the inflation print for September but that looks as if it will be last official statistic for some time. Corporate earnings appear fine, and stock markets are at all-time highs, but employment numbers appear to be faltering. As emphasis is therefore put on private surveys, the Fed is flying somewhat blind as it scrambles to find out what is really happening in the US economy. In the meantime, Donald Trump continues to pile on the pressure to cut interest rates and speculation over who will take over from Jerome Powell next year is ramping up, with Secretary of the Treasury Scott Bessent being the latest name floated by Donald Trump.
“Depending on what the Fed can see that we can’t, there may be more rate cuts to come this year. It is clear that on balance Fed officials now see the current rate as too high for the economy, but it will be wary not to give inflation cause to spike again – especially as tariff related inflation may still show up over time. This tug of war will be evident by the dissenting votes with Stephen Mirran wanting a bigger cut and Jeffrey Schmid preferring to take a wait and see approach. The bigger question entering this decision was what the Fed would do with its quantitative tightening programme. Today’s announcement confirms the central bank will halt its scale of tightening from December, especially given we have seen recent signs of shrinking reserves in the system and as a result of other sources of uncertainty in the market. Reducing/halting this activity might just help calm some nerves on liquidity compared to if it waited another month to do so.
“The Fed is entering a very uncertain time in its rate setting and the risk of policy mis-step is clear. There is a pressure and expectation to bring rates down further from here, but it is likely the Fed won’t want to act too aggressively in fear of making a mistake.”
