Fed Lowers Interest Rates but Powell Sows Doubt About December Cut

SPEAKER_1 (0:00)

The American economy thrives on cycles of boom and bust.

Dylan Tokar (0:04)

I just made $20 million, like that.

SPEAKER_1 (0:07)

What have the ups and downs gotten us? And what have they cost? Listen to USA 250 from The Wall Street Journal, coming to your What's News feed Sunday, October 19th.

Alex Ossola (0:21)

The Fed cuts interest rates by a quarter point, but officials are divided on how much further to go. Plus, how US allies in Asia are responding to President Trump's demand that they spend more on defense?

Alex Ward (0:33)

The issue that the Japanese and the South Koreans fear is, hey, if we spend more on our defense, does that mean the US wants out of this region? Or at least a lesser role in this region? So it's a weird situation here, where it's kind of like a Dan what they do, Dan what they don't.

Alex Ossola (0:48)

And the streak of job losses continues, with thousands more cuts announced. It's Wednesday, October 29th. I'm Alex Ossola for The Wall Street Journal. This is the PM Edition of What's News and top headlines and business stories that move the world today.

As was widely expected, the Federal Reserve lowered interest rates by a quarter point at its second consecutive meeting today, extending an effort to prevent a recent slowdown in hiring from turning into something more serious. The latest cut will reduce the Fed's benchmark short-term interest rate to a range of 3.75 percent to 4 percent, the lowest in three years and down from 5.4 percent that the Central Bank maintained for much of last year. What happens from here, though, has gotten murkier. Here's Federal Reserve Chair Jerome Powell.

Jerome Powell (1:37)

In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course.

Alex Ossola (1:55)

Greg Ip is WSJ Chief Economics Commentator and is here with me to discuss where the Fed's rate path goes from here. Greg, how did the voting for this meeting shake out? Were there any surprises?

Greg Ip (2:05)

The voting wasn't a big shock. The majority voted as expected in favor of the quarter point rate cut. We had a descent in favor of a bigger half point rate cut by Fed Governor Steve Myron. That was expected. We had a descent in favor of no cut by one of the Reserve Bank presidents. This is relevant less for what it meant for this week's meeting than what it means for the next meeting. Fed Chair Powell said there was strong disagreement about what to do in December. And I take that to mean that many people share both those views that they should keep cutting and they should stop cutting. And that deeply complicates where rates go from here.

Alex Ossola (2:41)

Back in September, there was a narrow majority of officials who said that they did expect several more rate cuts through the year, including in December. But does that seem like that picture has changed?

Greg Ip (2:52)

The following things have changed. There was support for that rate cut in September on the view that you had seen weaker labor market data and that the actual level of rates was still rather high. So today, what has changed? Even though there's blackout unofficial data, the unofficial data tell them that the labor market has not deteriorated further. There seems to be a lot of buoyancy out there around spending, around AI, around the stock market, and rates are another quarter point lower as of today. And so, given the absence of urgency to ease further to help the economy and the fact that they're getting closer to the sweets buffer where rates should be, it's just a lot less of a compelling case to cut further to a lot of folks at the Fed.

Alex Ossola (3:34)

As they're looking ahead for this next meeting, hopefully, there will be some government data by then. What are the kinds of things that they're going to be looking at to determine whether there is a need to cut rates further?

Greg Ip (3:45)

As you said, the absence of the data makes life really hard. I think everybody is hoping that the government shutdown will be over and we can start to fill in some of those blank spots. But in the meantime, we'll be getting a variety of non-official data. We'll still get some information on the number of people claiming unemployment insurance from state offices. There will be a stream of announcements from corporations. One of the things on people's minds is that there seems to have been an uptick in layoff announcements. On the other side, there is the price data, right? So we had a consumer price index reading for September.