Investors Primed For Fed Rate Cut And End Of QT Despite Data Blackout
Fed navigating policy with limited visibiltity
- Powell to strike cautious tone as policymakers navigate a data vacuum - Market consensus points to 25bp cuts in November and December - Tightening liquidity, banking stress underpin growing calls to end QT - Announcement due Wednesday at 18:00 GMT/14:00 EST - Press conference set for 18:30 GMT/14:30 EST
On Wednesday in Washington DC, the Federal Open Market Committee (FOMC) is widely expected to cut its main policy rate for a second consecutive meeting, even as it makes decisions based on a limited flow of economic data.
Virtually all respondents in the latest economists’ poll forecast a 25bp cut at the end of the two-day meeting, taking the federal funds rate to a 3.75%–4.00% range. In September, the Fed resumed its easing cycle with a similar reduction. Markets are pricing in a further quarter-point cut in December.
“The Fed has indicated that it will cut rates by 25bp,” said Aditya Bhave, US economist at BofA Global Research. “We also expect the FOMC to announce an end to balance sheet runoff. The Fed will likely acknowledge the recent strength in economic activity, but the broader shift in focus toward the labour mandate probably won't change.”
In terms of dissent, analysts point to Stephen Miran, the Trump-appointed FOMC member, who could push for a larger 50bp cut. Conversely, officials such as the Kansas City Fed’s Jeffrey Schmid or the Chicago Fed’s Austan Goolsbee may prefer to hold rates steady.
Limited data to work with
The federal government shutdown, now the second longest on record, has curtailed the release of key economic data since 1 October.
“The economic effects are limited for now, but there will likely be lasting effects on the data calendar,” Bhave added.
The White House last week said October CPI data may not be published, which economists warn could distort CPI rent measures into year-end. Fed officials have repeatedly noted that the data vacuum complicates policy setting.
Fed Governor Christopher Waller remarked on 16 October that the shutdown “has delayed important economic data that policymakers and the public rely on … making it harder to assess whether the labour market is stabilising or continuing to soften.”
Since September, incoming data have tended to support his view of a gradually weakening labour market and inflation trending close to the Fed’s 2% target, aside from temporary tariff effects.
With few official releases, the Fed has leaned more heavily on private-sector estimates and lagged data, raising questions about their reliability and consistency.
Source: Federal Reserve Board, BofA Global Research
Balance sheet adjustments
Policymakers are also expected to announce an end to quantitative tightening (QT).
Two weeks ago, regional bank shares slumped after fraudulent loan disclosures at Zions Bancorp and Western Alliance Bancorp rattled confidence in credit quality and liquidity conditions.
BofA’s rates team cited two factors behind its QT call: Firstly, Powell and Waller’s recent remarks signal that balance sheet runoff is nearing its end. Secondly, tightening liquidity, evidenced by elevated repo rates and declining reserve buffers.
Press briefing
Barclays economists expect Powell to say the limited data flow suggests little change in economic conditions since September.
“As in recent communications, he will likely emphasise that downside risks to employment remain elevated amid a significant slowing in job gains,” wrote Jonathan Millar. “We expect him to reiterate that slower job gains reflect, in part, immigration restrictions and ageing, while focusing on keeping long-term inflation expectations anchored.”
BofA posited that markets will be looking for any guidance on whether the Fed would cut or hold in December if the data flow is still delayed at that stage. “The upshot is that the October FOMC meeting is likely to leave market participants wanting for more guidance. However, the consumption-labour market conundrum and absence of official sector data make forward guidance that much harder.”
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- Powell to strike cautious tone as policymakers navigate a data vacuum
- Market consensus points to 25bp cuts in November and December
- Tightening liquidity, banking stress underpin growing calls to end QT
- Announcement due Wednesday at 18:00 GMT/14:00 EST
- Press conference set for 18:30 GMT/14:30 EST
By Harry Daniels
LiveSquawk News
@HarryDaniels71
28 October 2025 | 15:00 GMT
On Wednesday in Washington DC, the Federal Open Market Committee (FOMC) is widely expected to cut its main policy rate for a second consecutive meeting, even as it makes decisions based on a limited flow of economic data.
Virtually all respondents in the latest economists’ poll forecast a 25bp cut at the end of the two-day meeting, taking the federal funds rate to a 3.75%–4.00% range. In September, the Fed resumed its easing cycle with a similar reduction. Markets are pricing in a further quarter-point cut in December.
“The Fed has indicated that it will cut rates by 25bp,” said Aditya Bhave, US economist at BofA Global Research. “We also expect the FOMC to announce an end to balance sheet runoff. The Fed will likely acknowledge the recent strength in economic activity, but the broader shift in focus toward the labour mandate probably won't change.”
In terms of dissent, analysts point to Stephen Miran, the Trump-appointed FOMC member, who could push for a larger 50bp cut. Conversely, officials such as the Kansas City Fed’s Jeffrey Schmid or the Chicago Fed’s Austan Goolsbee may prefer to hold rates steady.
The federal government shutdown, now the second longest on record, has curtailed the release of key economic data since 1 October.
“The economic effects are limited for now, but there will likely be lasting effects on the data calendar,” Bhave added.
The White House last week said October CPI data may not be published, which economists warn could distort CPI rent measures into year-end. Fed officials have repeatedly noted that the data vacuum complicates policy setting.
Fed Governor Christopher Waller remarked on 16 October that the shutdown “has delayed important economic data that policymakers and the public rely on … making it harder to assess whether the labour market is stabilising or continuing to soften.”
Since September, incoming data have tended to support his view of a gradually weakening labour market and inflation trending close to the Fed’s 2% target, aside from temporary tariff effects.
With few official releases, the Fed has leaned more heavily on private-sector estimates and lagged data, raising questions about their reliability and consistency.
Policymakers are also expected to announce an end to quantitative tightening (QT).
Two weeks ago, regional bank shares slumped after fraudulent loan disclosures at Zions Bancorp and Western Alliance Bancorp rattled confidence in credit quality and liquidity conditions.
BofA’s rates team cited two factors behind its QT call: Firstly, Powell and Waller’s recent remarks signal that balance sheet runoff is nearing its end. Secondly, tightening liquidity, evidenced by elevated repo rates and declining reserve buffers.
Barclays economists expect Powell to say the limited data flow suggests little change in economic conditions since September.
“As in recent communications, he will likely emphasise that downside risks to employment remain elevated amid a significant slowing in job gains,” wrote Jonathan Millar. “We expect him to reiterate that slower job gains reflect, in part, immigration restrictions and ageing, while focusing on keeping long-term inflation expectations anchored.”
BofA posited that markets will be looking for any guidance on whether the Fed would cut or hold in December if the data flow is still delayed at that stage. “The upshot is that the October FOMC meeting is likely to leave market participants wanting for more guidance. However, the consumption-labour market conundrum and absence of official sector data make forward guidance that much harder.”