Key Takeaways:

• The Federal Reserve lowered interest rates by 25 basis points to a range of 3.75%-4.00%.
• The Fed announced it will end balance sheet reduction starting December 1st.
• Two FOMC members dissented, highlighting divisions within the committee.
• The Fed remains committed to achieving maximum employment and pushing inflation back to its 2% target.

Federal Reserve Rate Cut and Balance Sheet Decision

On October 30th, the Federal Reserve made the decision to lower the benchmark interest rate by 25 basis points, bringing the target range to 3.75%-4.00%. This marks the second consecutive rate cut, aligning with widely held market expectations. However, the decision was not unanimous, as two members of the Federal Open Market Committee (FOMC) voted against the move. Kansas City Fed President Jeffrey Schmid dissented, arguing for maintaining rates at their current level. Similarly, Stephen Miran expressed his opposition, but advocated for a more aggressive 50 basis point cut.

In addition, the FOMC announced that it would halt the reduction of its balance sheet, effective December 1st. Currently, the Fed is shrinking its balance sheet by reducing its holdings of Treasury securities by $5 billion per month and mortgage-backed securities (MBS) by $35 billion per month. After December 1st, principal payments from mortgage-backed securities will be reinvested in short-term Treasury securities.

FOMC Statement: An Overview

The statement released by the FOMC indicates that economic activity is expanding at a moderate pace. While job gains have slowed this year, with a slight increase in the unemployment rate, it remains relatively low as of August. Inflation remains elevated relative to the committee's targets.

The FOMC emphasizes its commitment to achieving maximum employment and maintaining a 2% inflation rate over the longer run. Uncertainty surrounding the economic outlook remains elevated, and the committee is closely monitoring risks to both goals. The committee notes that downside risks to the labor market have increased in recent months.

In support of these goals, the FOMC decided to lower the target range for the federal funds rate by 25 basis points. When considering further adjustments to the target range, the committee will carefully assess incoming data, the evolving economic outlook, and the balance of risks. The committee also reiterates its commitment to supporting maximum employment and pushing inflation back to its 2% target.

Future Assessment of Monetary Policy

The FOMC will continue to monitor new information and assess its implications for the economic outlook. If risks emerge that could impede the attainment of the committee's goals, the committee will adjust the stance of monetary policy as appropriate. The committee's assessment will take into account a wide range of information, including labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Committee Vote

The members voting in favor of the monetary policy action were: Jerome H. Powell (Chair), John C. Williams (Vice Chair), Michael S. Barr, Michelle W. Bowman, Susan M. Collins, Lisa D. Cook, Austan Goolsbee, Philip N. Jefferson, Alberto G. Musalem, and Christopher J. Waller.

The members voting against the decision were: Stephen I. Miran (who preferred a 50 basis point rate cut) and Jeffrey R. Schmid (who preferred to maintain the existing rate range).