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MOOSPEAK: NOV2.2025
Not So Fast, Bucko!
As expected, the Federal Reserve on Wednesday cut interest rates by a quarter percent and ended its "quantitative tightening" effective December 1. Just as expectedly, a policy tiff within the US central bank, coupled with a lack of federal government data may have put another interest rate cut out of reach this year. After delivering the expected 25 bps rate cut on schedule Wednesday, Chairman Powell tossed the proverbial wrench into the monkey by noting in his follow-up presser that another rate cut in December was hardly a "foregone conclusion". "Far from it", he added.
Huh?
Did I miss something? What exactly happened between Tuesday and Wednesday? How do we go from a 91% probability of a Fed rate cut at the December meeting to the Fed Chairman insisting a December rate cut is “not a foregone conclusion... far from it”?
Just when we were expecting to stroll joyously into the holiday shopping season with the promise of a third rate cut, Mr. Grinch says, "Not so fast, Bucko."
I swear that will go down as this Fed Chairman's mantra. I haven't decided whether he's just massively cautious or completely out of his depth. Either way, the guy certainly takes his time even after he's ostensibly already made up his mind.
I wonder if it's a function of professional mindset. For bankers and economists time is money. Delay costs you. For lawyers like the chairman, time is billable hours. Delay makes you money. Bankers and economists are used to making decisions under uncertainty, while lawyers like to have their ducks in a row, never asking questions they don't already know the answer to and demanding hard evidence before they jump to any conclusions.
Unfortunately, by the time there's undeniable evidence that a particular change in monetary policy is warranted, you're already screwed. Good Fed policy needn't be prescient, but it can't be totally reactionary either.
The US still has some of the highest interest rates in the world among developed nations, rates that exceed our rate of inflation. That's our own fault, because since Obama, our government has been spending money like a drunken sailor. That spending hasn't stopped yet, despite the last election. What’s worse, the people who have to write the bills for Congress to change all that are sitting at home.
Thus there will always be an argument to be made against further rate cuts. Using it to "jawbone" and temper inflationary spirits is acceptable, but it isn't the sole driver of the monetary debate and shouldn’t be taken as such.
