Powell's Remarks Cause Market Fluctuations
After the latest monetary policy meeting, the Federal Reserve, as expected, lowered the benchmark interest rate by 25 basis points, but Chairman Powell's remarks sharply shifted market sentiment. He stated that further rate cuts in December are "not a foregone conclusion," which was in stark contrast to previous market expectations. U.S. stocks fell on the same day after initially rising, and the bond market experienced a significant sell-off, shaking investors' confidence in future policy. Market analysts noted that the "cautious signals" from the Fed indicate significant internal disagreements on the sustainability of inflation and economic momentum.
Data Shortfall Weakens Decision-Making
The government shutdown has led to delays in releasing key macroeconomic data, challenging the Fed's ability to assess the economic situation due to insufficient information. The absence of employment, inflation, and consumption data makes it difficult to calibrate internal forecasting models, forcing policy adjustments to rely on limited trend assessments. Analysts widely believe that the data void will continue to disrupt market pricing, and the probability of rate cuts within the next six weeks may fluctuate significantly. The macro team at BNY Mellon warns, "The market may amplify every word of policy discourse in the absence of new data, leading to sharp price swings."
Internal Divisions: Rate Cut Magnitude in Focus Again
Meeting minutes reveal clear divisions among policymakers regarding the magnitude of rate cuts. Two officials voted against—the first advocating for more substantial easing, while the other insists on pausing rate cuts. Industry interpretations suggest this "internal split" reflects the Fed's dilemma in dealing with sticky inflation and sluggish growth: Continuing rate cuts may stimulate asset bubbles, while a pause could suppress employment and consumption. Powell reiterated at the press conference that the Fed will "rely on data, not market expectations," attempting to downplay assumptions of a prolonged easing cycle by outsiders.
Wall Street Reactions and Expectation Repricing
Following the meeting, the interest rate futures market quickly adjusted its December rate cut bets. Data from the London Stock Exchange Group shows that the probability of a cut has plummeted from 85% to around 68%. Opinions among institutions vary significantly—Morgan Stanley and State Street Global Advisors still see a high chance of one rate cut before year-end, while Nomura Securities has entirely withdrawn its December rate cut forecast, instead predicting a new round of easing to start in 2026. In the stock market, after four consecutive gains, the S&P 500 Index saw a pullback as investors began re-evaluating asset valuations and earnings expectations.
The Diminished Impact of Policy Relaxation Signals
Although the Fed simultaneously announced a halt to the reduction of its balance sheet, market reactions were muted. Some institutions noted that the symbolic significance of ending quantitative tightening is far more considerable than its actual impact, as the pace of balance sheet reduction has already been marginally slowed. Analysts believe that without clear follow-up guidance, the transmission effect of easing policies will be weakened. Fixed income market experts stated, "Without a clearer path for rate cuts, even a rate reduction may not effectively revive risk appetite."
Risks of Policy and Signal Disconnection
Looking ahead, the market will focus on three key variables: when missing data will be restored, whether the labor market can slow further, and if internal policy disagreements will be resolved. If short-term data shortages persist, frequent market fluctuations are likely before the December meeting. Analysts widely believe the Fed's contradictory stance in this round of communications—both cutting rates and cautioning—has confused investors' signal interpretations. In the coming weeks, Wall Street may face more "nerve-wracking moments," and each of Powell's speeches could ignite a re-pricing.
