Powell Cautions Against Assuming More Cuts, Cites Uncertainty and Split Within FOMC

Balance Sheet Runoff to End in December In a notable shift in policy stance, the Fed announced it would halt its balance sheet reduction program on December 1. The central bank has reduced its holdings by approximately $2.3 trillion since quantitative tightening began, bringing its balance sheet down to $6.6 trillion.

However, recent funding market stress signaled limits to how much further tightening could proceed without adverse effects. Proceeds from maturing mortgage-backed securities will now be reinvested into shorter-term Treasury bills, reflecting a more cautious liquidity stance moving forward.

Economic Signals Mixed as Data Blackout Obscures View The FOMC statement upgraded its view on growth, citing that “economic activity has been expanding at a moderate pace,” compared to September’s more subdued language. Powell reinforced this during his press conference, pointing to stronger-than-expected consumer spending before the data blackout.

Still, labor market signals were less encouraging, with the committee acknowledging that “job gains have slowed” and that “downside risks to employment rose in recent months.”

Inflation Still Elevated Despite Rate Cuts Persistent inflation remains a challenge for the Fed. The central bank noted that price pressures “remain somewhat elevated,” with recent CPI data showing annual inflation at 3%—still above its 2% target.

Notably, last week’s CPI report was one of the few economic indicators released during the shutdown. Higher energy costs and lingering effects of Trump-era tariffs contributed to the uptick, adding complexity to future policy decisions.