Fed Cuts But Ends QT as Liquidity Risks Emerge
The Federal Reserve lowered its target range to 3.75%–4.00% in its second rate cut of the year. Policymakers also formally ended quantitative tightening, citing signs of liquidity stress and falling reserve balances in the banking system. The Fed acknowledged limited visibility due to the government shutdown, noting its economic assessment was based on “available indicators.”
“The Fed had to qualify everything,” said Brian Jacobsen of Annex Wealth Management, pointing to the scarcity of data and signs of money market stress. Still, the policy decision itself delivered no surprises. Instead, market focus shifted swiftly to Powell’s press conference.
Powell Pushes Back on December Easing
Powell’s comments offered a clear signal that further cuts in 2025 are not guaranteed. “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it,” he said, citing diverging views within the FOMC. The message prompted traders to reassess the Fed’s near-term path, even as the CME FedWatch Tool continued to show a 70% probability of another cut in December.
Michael Pearce of Oxford Economics expects the Fed to pause in the coming months. “Our view is predicated on a stabilization in labor market conditions,” he said, adding that further easing may not resume until 2026.
Yields Climb as Markets Reprice the Fed Path
U.S. Treasury yields surged after Powell’s comments. The 10-year yield rose 7.7 basis points to 4.06%, while the 2-year climbed 9.2 basis points to 3.586%. The 30-year moved up to 4.60%. This yield repricing helped extend the dollar’s gains, reinforcing its rally on both policy divergence and stronger rate differentials.
