Home Insights Macro views October FOMC meeting: Navigating the fog
Aerial view of a shipping yard at sunset.

October FOMC meeting: Navigating the fog

Market response

October 29, 2025 | 2 min read
Magdalena Ocampo
Market Strategist
Christian Floro, CFA, CMT
Market Strategist
linkedin icon link icon

The Federal Open Market Committee (FOMC) delivered another expected 25 basis point cut at its October meeting, lowering the benchmark policy rate to 3.75%-4.00%. It also announced an end to quantitative tightening beginning December 1, as the shrinking of its balance sheet has run its course. Two members of the Committee dissented from this month’s decision—one in favor of a more aggressive 50 basis point cut, and one in favor of no cut—compared to just one dissent in September, which favored a larger cut.

As the government shutdown continues, the Fed is navigating policy with limited key official data releases. For now, based on what’s available, the Fed seems comfortable with its decision to continue easing policy. Indeed, today’s rate cut reinforces the Fed’s risk management approach, reflecting the shift in the balance of risk toward labor market softness.

Current assessment

Inflation: Powell noted that the inflation outlook has not changed much since the September meeting. The FOMC continues to view tariff-driven goods inflation as a one-time price increase, though Powell noted that the risk of more persistent price pressures will be closely monitored. Importantly, long-term inflation expectations remain anchored, and disinflation in services is providing a counterbalance to goods price pressures.

Labor market: Echoing last month’s “risk management cut,” the FOMC emphasized that while risks to both sides of the Fed’s dual mandate persist, the balance of risk remains tilted toward labor market softness.

Although layoffs remain relatively low, firms curtailing hiring and announcing layoffs recently could be linked to the growing role of AI in the workplace. While these shifts have not quite shown up in claims data, the FOMC is monitoring them closely. Powell also pointed to structural factors weighing on labor supply—namely, declining labor force participation and lower immigration—which may be keeping the labor market in balance even as labor demand softens. Powell suggested that the Fed may continue using its policy tools to support labor market resilience ahead.

Liquidity: The decision to stop Quantitative Tightening on December 1 reflects growing caution around building pressures in funding markets, a sign of tightening liquidity within the financial system. The move should also better align the composition of its Treasury portfolio closer to that of recent issuance, with reinvestment flows going into shorter-duration Treasurys, providing support for this portion of the market.

Policy outlook

With inflation risks still tilted to the upside and employment risks also still tilted to the downside, Powell emphasized the Fed’s cautious stance, which requires a balanced approach to policy. Notably, he pushed back against market expectations for a cut in the next meeting, noting that a rate cut in December is “far from” a foregone conclusion.

Differences in risk tolerance and diverging views within the FOMC are becoming more apparent, particularly as members interpret conflicting signals between labor market softness and broader economic strength. If data remains limited amid the ongoing government shutdown, the Fed may choose to pause in December, introducing further uncertainty around another rate cut. Still, with policy settings remaining restrictive, a modest reduction in rates—and a gradual move toward a more neutral stance—appears likely.

Macro views
Disclosure

Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results.

Views and opinions expressed are accurate as of the date of this communication and are subject to change without notice. This material may contain ‘forward-looking’ information that is not purely historical in nature and may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

The information in the article should not be construed as investment advice or a recommendation for the purchase or sale of any security. The general information it contains does not take account of any investor’s investment objectives, particular needs, or financial situation.

Insurance products and plan administrative services provided through Principal Life Insurance Co. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities are offered through Principal Securities, Inc., 800‐547‐7754, Member SIPC and/or independent broker/dealers. Principal Life, Principal Funds Distributor, Inc., and Principal Securities are members of the Principal Financial Group®, Des Moines, IA 50392.

4949223
About the author