By: Rhona O'Connell, Head of Market Analysis
Rhona O'Connell, Head of Market Analysis, EMEA & Asia
Tel: +44 203 580 6115 / mobile +44 7384 833897
30 October 2025
Fed cuts by 25 points; QT to stop on 1st December
Bond markets pricing in a 70% chance of a 25-pt cut in December
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The Fed unanimously voted for a 25 basis point cut in the October meeting (although there had been some internal dissent on both sides). Jay Powell has left the way open for a further cut in December, but he said it is by no means a foregone conclusion.
Source: Bloomberg
In the Statement, the FOMC said that available indicators suggest a moderate pace of expansion in economic activity with job gains slowing and the unemployment rate edging up. It goes on to say that recent indicators are consistent with these developments although it does note that inflation has moved up and remains some “somewhat elevated” . Fed funds comes down to the band 3.75 – 4.00%.
In addition, as expected, but potentially significant, the Fed will conclude its QT as of 1st December, reflecting the increasing tightness in money market conditions.
As usual, the Committee has given itself room for manoeuvre, saying that it would be prepared to adjust monetary policy as appropriate if risks emerge that could impede the attainment of the dual mandate.
US 2-year:10 year bond yields
Source: Bloomberg, StoneX
In his press conference, Jay Powell noted that although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low and that both households’ perceptions of job availability and firms’ perceptions of hiring difficulty continue to decline. It goes on to say that in this less dynamic and somewhat soft labour market the downside risks to the mandate appear to have risen in recent months.
Inflation: - estimates based on CPI suggest that total PCE prices rose 2.8% over the 12 months to end September, with core also at 2.8%. This is higher than earlier in the year as goods inflation has picked up while disinflation appears to be continuing for services. Near-term measures of inflation expectations have moved up over the course of this year amid news about tariffs, but beyond the next year or so, most measures of longer term expectations remain consistent with 2% target. Higher tariffs are pushing up prices in some goods categories and a reasonable base case is that the effects on inflation will be relatively short lived - i.e., a one time shift in the price level; but there is the risk that inflationary effects could be more persistent.
Near-term risks to inflation are tilted to the upside and employment to the downside, which is a challenging situation; he notes that there is “no risk-free policy”. The framework calls for them to take a balanced approach in promoting both sides of the mandate and with the balance of risks shifting in recent months , the Committee took another step towards “a more neutral policy stance”.
With respect to QT, he noted that over the 3-1/2 years of balance shrinkage, Fed securities have declined by $2.2 Tn and from 35% of nominal GDP to about 21%. In December, they will move to holding the size of the balance sheet steady for a while as reserve balances decline while other non reserve liabilities, such as currencies, keep growing. They will continue to allow agencies to run off the balance sheet, reinvesting the proceeds from these securities in Treasury bills, thus further progressing towards a portfolio consisting mainly of Treasury securities. They argue that this reinvestment strategy would also help move the weighted average maturity of the portfolio closer to that of the outstanding stock of Treasury Securities, thus further normalising the composition of the balance sheet.
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