"There's a lot of tension ahead of us": what's being said on Wall Street in the wake of the Fed's decision

Wall Street experts noted the growing disagreement within the Fed and warned of a "tense period" ahead after the second rate cut of the year and the announcement of the end of the quantitative tightening program. In addition, Wall Street was also surprised by comments from Fed chief Jerome Powell that a December decision on further rate cuts was "far from a foregone conclusion." Some analysts saw these words as a cautious step to protect employment, while others saw them as a hawkish signal to slow down the monetary easing cycle.

"By cutting the rate by 25 basis points and announcing the end of the quantitative tightening (QT) program on December 1, the Federal Open Market Committee (FOMC) chose the path of least resistance, " said Bloomberg Economics analyst Anna Wong. The expert added that the rate cut is aimed at minimizing risks to employment, even despite the limited statistical data due to the government shutdown. According to her assessment, if the shutdown continues, FOMC members will probably not receive new data on inflation and unemployment by the next meeting on December 9-10. "We believe the Fed will remain in risk management mode and then cut the rate by another 25 basis points," Wong emphasized.

"Markets had already priced in a rate cut in December, so the current signal has added uncertainty and called into question the idea of a predictable move toward neutral policy - that path may be longer than expected," Dan Carter, senior portfolio manager at Fort Washington Investment Advisors, commented to Bloomberg. He added that the slowing labor market has served as an argument for policy easing for two consecutive meetings, and the situation is unlikely to change until December. Even if one views such moves as "technical" or "supportive" measures, he said, there is "good reason to cut rates a bit in December before pausing and assessing the effect."

The market was expecting rate cuts in October and December, so Powell's words about the uncertainty of the outcome of the December meeting became an unexpected "hawkish" signal that could strengthen the dollar, said Audrey Child-Freeman, G10 currency strategist at Bloomberg Intelligence. At the same time, she said, a December rate cut is still possible, but it will now depend on economic data - which is now clearly lacking because of the shutdown. "Against this background, the euro-dollar exchange rate has once again dropped below the $1.16 mark. Such dynamics well illustrates the risks that "bears" on the dollar may face in 2026: expectations of lower yields, which can weaken the dollar, is yet to be confirmed by fresh macroeconomic data, "- added the expert.

"There's a lot of tension ahead of us because this is a really difficult period. First of all, we are acting almost blindly. Secondly, inflation is rising, unemployment is also gradually rising, and the labor market is slowing down. All of this together is creating a sort of 'tinge of stagflation' - which is why there's likely to be more and more disagreement at the Fed, with committee members' views diverging in both directions," KPMG chief economist Diane Swank added on Bloomberg Television.

"Overall - nothing unexpected, except for [Kansas City Reserve Bank President Jeffrey] Schmid's dissent, which reinforced my confidence that Jerome Powell will resist the idea of a rate cut in December," noted Peter Boockvar of The Boock Report.

"I'm sure we're going to see this kind of disagreement more and more often for the rest of Powell's term," Richard Clarida, a former Fed vice chairman and current Pimco executive, said on Bloomberg TV. - Judging by the dot plot, the committee is now very divided on whether to make pre-emptive rate cuts when inflation is around 3%."

Analyst Neil Datta from Renaissance Macro also believes that in the conditions of divergence of opinions in the committee, the maximum that the Federal Reserve is able to do is to continue the gradual easing of the rate in steps of 0.25 p.p., he emphasized. At the same time, given the difference in views among the committee members, it is difficult to be sure in advance that the next rate cut will actually take place in December, he emphasized.

Following a two-day meeting on October 28-29, the U.S. Federal Reserve lowered the key rate by 0.25 percentage points to a range of 3.75% to 4%. This was the second consecutive easing of monetary policy this year after a similar decision in September and fully coincided with the expectations of market participants and economists. 10 members of the Federal Reserve Open Market Committee voted in favor of the decision to cut the key rate by 0.25 percentage points. Two were against it: one (Governor Stephen Miran) suggested lowering the rate immediately by 0.5 p. p., the second (President of the Reserve Bank of Kansas City Jeffrey Schmid) - to leave it unchanged. In addition, the Fed announced that from December 1 it will end the program of balance sheet reduction (so-called quantitative tightening, QT).

At a press conference after the decision was announced, Fed Chairman Jerome Powell said that the continuation of interest rate cuts by the US Federal Reserve at its December meeting is "far from a foregone conclusion". Back in September, the regulator predicted that further easing of monetary policy could follow at the meetings in October and December, but Powell's hawkish comments made the market doubt further easing. About 63% of traders are now betting on a key rate cut in December instead of 85%, a figure that was immediately after the regulator's decision was announced, according to data from CME's FedWatch monitoring tool.

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