- US: Fed cuts rates by 25 bps and will conclude quantitative tightening on 1 Dec, as widely expected; Powell’s December cut hedge unlikely to prevent action
- Asia: China-US trade tensions ease following APEC summit; BOJ holds rates as PM Takaichi’s era begins; South Korea’s economy outperforms on strong domestic consumption and exports
- China: The Fourth Plenum’s policy blueprint reflects policymakers’ determination to transition toward high-quality, resilient, and innovation-led growth
Related insights
US: Fed cuts, but Powell hedges. The Fed has trimmed its terminal rates by 25 bps to 4% at its October meeting and decided to conclude quantitative tightening (QT) on 1 Dec, as widely expected. Principal payments from mortgage-backed securities will then be directed into bills. The FOMC statement contained no surprises, continuing to emphasise downside risks to employment. The voting pattern reflected split views—Miran dissented in favour of a 50 bps cut, while Schmid dissented in favour of a hold), which are both well known to the market.
The surprise came from Chair Powell’s comment that December’s cut was not a “forgone conclusion”. From a policy-making perspective, Powell appears to want some optionality in December and pushback against overly aggressive Fed cut expectations. Consequently, the market has removed one cut from terminal rate pricing and now sees c.70% odds of a December cut (previously close to 100%).
What should we make of Powell’s pushback after the latest FOMC meeting, when asked if the next cut was a foregone conclusion and he replied that it was “far from it”? We think Powell’s stance reflects the complex and uncertain economic picture that the Fed is seeing at this juncture. Financial markets are buoyant, retails sales are strong, investment is surging, and inflation is well above target. Balancing these against the incipient worsening of the jobs market, further compounded by the data blackout stemming from the government shutdown, Powell and most of his fellow FOMC members are finding themselves a tad vexed.
Despite the jolt from Powell overnight, we think the hurdle for not cutting in December is very high. A major jump in jobs and inflation would be warranted for that hurdle to be reached; though, neither is very likely, in our view. The Fed’s balanced communication was helpful in moderating market exuberance to some extent and set the stage for more challenging deliberations in the new year. Cutting rates so far has been easy; decision to cut much more will be fraught with difficulties.
Besides the next rate decision in December, markets are also awaiting US President Donald Trump’s nomination of Powell’s successor after Thanksgiving (27 Nov). US Treasury Secretary Scott Bessent, who is finalising the selection process, has publicly suggested that announcing the nominee early would mean "no one is really going to care what Jerome Powell has to say anymore." An early nomination would create a “shadow chair” by allowing Trump’s nominee to replace Stephen Miran, whose term as Fed Governor ends on 31 Jan 2026. Trump is clear about avoiding another mistake, such as appointing an independent-minded Fed Chair like Powell, and is instead seeking a successor who aligns more closely with his economic agenda, particularly regarding lower interest rates and reduced regulation.
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