Federal Reserve cuts key rate yet Powell says future reductions are not
locked in
[October 30, 2025] By
CHRISTOPHER RUGABER
WASHINGTON (AP) — The Federal Reserve cut its key interest rate
Wednesday for a second time this year as it seeks to shore up economic
growth and hiring, even as inflation stays elevated.
But Fed Chair Jerome Powell also cautioned that further rate cuts
weren’t guaranteed, citing the government shutdown’s interruption of
economic reports and sharp divisions among 19 Fed officials who
participate in the central bank's interest-rate deliberations.
Speaking to reporters after the Fed announced its rate decision, Powell
said there were “strongly differing views about how to proceed in
December” at its next meeting and a further reduction in the benchmark
rate is not “a foregone conclusion — far from it.”
The rate cut — a quarter of a point — brings the Fed's key rate down to
about 3.9%, from about 4.1%. The central bank had cranked its rate to
roughly 5.3% in 2023 and 2024 to combat the biggest inflation spike in
four decades before implementing three cuts last year. Lower rates
could, over time, reduce borrowing costs for mortgages, auto loans, and
credit cards, as well as for business loans.
The move comes amid a fraught time for the central bank, with hiring
sluggish and yet inflation stuck above the Fed’s 2% target. Compounding
its challenges, the central bank is navigating without the economic
signposts it typically relies on from the government, including monthly
reports on jobs, inflation, and consumer spending, which have been
suspended because of the government shutdown.
Financial markets largely expected another rate reduction in December,
and stock prices dropped after Powell's comments, with the S&P 500
nearly unchanged and the Dow Jones Industrial Average closing slightly
lower.
“Powell poured cold water on the idea that the Fed was on autopilot for
a December cut,” said Gennadiy Goldberg, head of U.S. rates strategy at
TD Securities. "Instead, they’ll have to wait for economic data to
confirm that a rate cut is actually needed.”
Powell was asked about the impact of the government shutdown, which
began on Oct. 1 and has interrupted the distribution of economic data.
Powell said the Fed does have access to some data that give it “a
picture of what’s going on.” He added that, “If there were a significant
or material change in the economy, one way or another, I think we’d pick
that up through this.”
But the Fed chair did acknowledge that the limited data could cause
officials to proceed more cautiously heading into its next meeting in
mid-December.
“There’s a possibility that it would make sense to be more cautious
about moving (on rates). I’m not committing to that, I’m just saying
it’s certainly a possibility that you would say ‘we really can’t see, so
let's slow down.’”
The Fed typically raises its short term rate to combat inflation, while
it cuts rates to encourage borrowing and spending and shore up hiring.
Right now it sees risks of both slowing hiring and rising inflation, so
it is reducing borrowing costs to support the job market, while still
keeping rates high enough to avoid stimulating the economy so much that
it worsens inflation.
Yet Powell suggested the Fed increasingly sees inflation as less of a
threat. He noted that excluding the impact of President Donald Trump's
tariffs, inflation is “not so far from our 2% goal.” Inflation has
slowed in apartment rents and for many services, such as car insurance.
A report released last week showed that inflation remains elevated but
isn't accelerating.
The government recalled employees to produce the report, despite the
shutdown, because it was used to calculate the cost of living adjustment
for Social Security.
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A seal is seen before Federal Reserve Chairman Jerome Powell walks
out to speak during a news conference following the Federal Open
Market Committee meeting, Wednesday, Sept. 17, 2025, at the Federal
Reserve Board Building in Washington. (AP Photo/Jacquelyn Martin,
file
 At the same time, the economy could
be rebounding from a sluggish first half, which could improve job
growth in the coming months, Powell said. That would make rate cuts
less necessary.
“For some part of the committee, it’s time to maybe
take a step back and see if whether there really are downside risks
to the labor market," Powell said. "Or see whether in fact that the
stronger growth that we’re seeing is real.”
Two of the 12 officials who vote on the Fed’s rate decisions
dissented Wednesday, but in different directions. Jeffrey Schmid,
President of the Federal Reserve Bank of Kansas City, voted against
the move because he preferred no change to the Fed’s rate. Schmid
has previously expressed concern that inflation remains too high.
Fed governor Stephen Miran dissented for the second straight meeting
in favor of a half-point cut. Miran was appointed by President
Donald Trump just before the central bank’s last meeting in
September.
Trump has repeatedly attacked Powell for not reducing borrowing
costs more quickly. In South Korea early Wednesday he repeated his
criticisms of the Fed chair.
“He’s out of there in another couple of months,” Trump said.
Powell’s term ends in May. On Monday, Treasury Secretary Scott
Bessent confirmed the administration is considering five people to
replace Powell, and will decide by the end of this year.
The Fed also said Wednesday that it would stop reducing the size of
its massive securities holdings, which it accumulated during the
pandemic and after the 2008-2009 Great Recession. The change, to
take effect Dec. 1, could over time slightly reduce longer-term
interest rates on things like mortgages but won't have much overall
impact on consumer borrowing costs.
Without government data, the economy is harder to track, Powell
said. September's jobs report, scheduled to be released three weeks
ago, is still postponed. This month's hiring figures, to be released
Nov. 7, will likely be delayed and may be less comprehensive when
finally released. And the White House said last week that October's
inflation report may never be issued at all.
Before the government shutdown cut off the flow of data, monthly
hiring gains had weakened to an average of just 29,000 a month for
the previous three months, according to the Labor Department's data.
The unemployment rate ticked up to a still-low 4.3% in August from
4.2% in July.
More recently, several large corporations have announced sweeping
layoffs, including UPS, Amazon, and Target, which threatens to boost
the unemployment rate if it continues. Powell said the Fed is
watching the layoff announcements “very carefully.”
___
Associated Press Writer Alex Veiga in Los Angeles contributed to
this report.
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