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The Federal Open Market Committee (FOMC) concluded its October 29, 2025 meeting by announcing a 25 basis point rate cut, lowering the federal funds target range to 3.75%–4.00%. This marks the second rate reduction of the year, signaling growing concern within the Federal Reserve about slowing economic growth and a weakening labor market. Alongside the rate cut, the Fed also revealed that it will halt its balance sheet reduction program, commonly known as quantitative tightening, starting December 1, 2025, in response to liquidity pressures and tightening conditions in money markets.
The Fed’s official statement emphasized that uncertainty about the economic outlook remains elevated, noting that downside risks to employment have increased while inflation remains somewhat above the 2% target. Policymakers stressed that future decisions will depend on incoming economic data, which has been complicated by ongoing federal data delays caused by the government shutdown. The Committee remained cautious, stating that any further policy adjustments will be made “meeting by meeting,” without committing to a specific path of rate cuts.
The internal dynamics of the FOMC showed some dissenting votes, reflecting divisions among policymakers about the pace and size of future cuts. Some members favored holding rates steady due to lingering inflation concerns, while others pushed for a more aggressive easing stance to support economic stability.
Market reaction was largely positive, with expectations that the Fed may continue cutting rates if growth indicators continue to weaken. Lower borrowing costs could help ease financial conditions for households and businesses, while the suspension of balance sheet runoff suggests a more supportive liquidity stance. However, inflation pressures and the risk of a premature policy shift remain key challenges.
For global and emerging markets, including Pakistan, the Fed’s rate cut could offer temporary relief in terms of lower capital outflow pressure and reduced debt servicing costs. Yet, volatility in currency and bond markets may persist, depending on how the Fed balances inflation control with its efforts to sustain growth.
Overall, the October meeting signaled a strategic pivot in monetary policy from tightening to cautious easing, reflecting the Fed’s growing focus on stabilizing the economy amid uncertainty, incomplete data, and mixed inflation dynamics.
#FOMC #FederalReserve #interestrates #RateCut #JeromePowell

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