Thoughts Regarding the FOMC Statement and Powell Press Conference – Currency Thoughts

Thoughts Regarding the FOMC Statement and Powell Press Conference

October 29, 2025

Two things unrelated to the characterization of current economic conditions pop up in today’s statement:

1. The vote to cut confirm the 25-basis point interest rate cut was a spit one. Governor Miran as in September voted to reduce the interest rate by a larger 50 basis points, which was predictable. The possibility of some committee members resisting a cut had not been anticipated, however, yet Kansas City Fed President Schmid voted to leave the target fed funds rate unchanged at 4.0-4.25%, rather than go along with the majority of ten that chose to cut such to 3.75-4.00%.
2. There had been hints from Governor Powell that the policy of reducing the Fed’s balance sheet by not rolling over all maturing bonds. While this policy gradually reverses the balance sheet build-up through quantitative easing both during the 2007-09 financial crisis and during Covid and in effect was akin to quantitative tightening. Today’s statement suspends that policy, effective December 1. While markets were focused on the possibility of such a decision, the precise termination date was not known until now. Some thought it could have been effective immediately. Others imagined it not happening before yearend.

A major takeaway from Chairman Powell’s press conference is that beyond today’s decision, a wide diversification exists on the FOMC of whether, when and under what circumstances interest rates ought to be cut again. The Fed always communicates the message that each policy review is it’s own entity, with decisions based on all pertinent information at the time. Unlike the two-years between mid-2004 and mid-2006 (see top of the table in the FOMC Preview when by design the Fed chose in advance to increase the rate by a quarter percentage point over 17 consecutive scheduled policy reviews), rate change decisions beyond the immediate meeting at hand are avoided. Powell stressed that at this point in time, the shift in framework that occurred after mid-2006 applies much more deeply this time. Not only because of the greatly dispersed views among FOMC members but also because those positions are held with extremely strong conviction, the task at the December meeting and those that will follow, it will be very challenging to reach a consensus and near impossible at the current juncture to predict what will be done then.

Powell has been on the FOMC since May 2012, first as a governor and then as Fed Chairman for the past nearly 8 years, and the sense conveyed today is that by far he has not seen as much dispersion of positions as he is seeing now when considering appropriate policy beyond today’s move. He underscored that this shift did not concern today’s action, where 10 of the 12 voting members were in solid agreement to cut by 25 basis points. But for many, 150 basis points of rate reduction since September 2024 leaves the interest rate within range of the appropriate final neutral destination. Disagreement on the committee does not reflect a difference of opinion over the dual mandate. It reflects differences in perceptions of the risks of excessive inflation, sub-standard labor market conditions, differences in perceived consequences should one or both of those possibilities transpire, and a range of opinions of the effectiveness of treating low growth in the supply of labor with monetary policy. The bottom line is that not only is their wide diversity of views but also that the committee members at the two poles are holding their opinions very strongly.

In characterizing current U.S. economic conditions, Powell also emphasized that committee members with the somewhat imperfect state of available data during the government shutdown do not observe or think that a significant acceleration of moderating labor market conditions has occurred since the end of the third quarter.

Final Thought: Prior to the decision and press conference, many analysts presumed that the potential for greatest influence over financial markets would be details about how and when Federal Reserve balance sheet reduction is to be modified. That issue actually took up a minor part of the press conference and was downplayed in importance relative to matter of how future decisions on how to manage the federal funds target in a way that balances the twin but opposing mission mandates in a way that appropriately balances the risks of price stability and maximum employment.

Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: FOMC statement and press conference

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