Fed Rate Cut: Developments in Line with Market Expectations

No Surprise from the Fed: Interest Rates Cut

The Federal Reserve (Fed) lowered the policy interest rate by 25 basis points to a range of 3.50% – 3.75%, in line with market expectations. This step is notable as it is regarded as the last interest rate cut of 2025, coming alongside a total of three 25 basis point cuts throughout the year.

President Powell's Statements Awaited

Following this important decision, investors are focused on the statements of Fed Chairman Jerome Powell. Powell is set to appear before the cameras at 22:30 to provide various insights to the markets.

Decisions Made in an Environment of Data Scarcity

The critical aspect of this Fed meeting is that decisions were made based on perhaps the most limited data set in recent years. Due to the government shutdown, the normally provided monthly and quarterly data has been significantly disrupted. Since mid-November, inflation and labor market indicators have not been published; this indicates that the Fed is struggling to assess the current economic situation.

The labor market data from November, indicating an unemployment rate rise to 4.4% and a slowdown in employment growth, has added complexity to the Fed's decision-making processes. While it is typically expected that upcoming data in the following months will provide a clearer picture, this has not materialized.

Balancing Between Dovish and Hawkish Views

In the absence of official data, individual indicator reports from private sector sources indicate that employment is weakening. For example, ADP's data for the October-November period points to negative trends in private sector employment. This situation reinforces the dovish camp’s view that “the labor market is weakening, another rate cut is necessary,” while hawks argue that such indicators alone are not sufficient.

As a result, the 25 basis point cut made by the Fed under these circumstances is evaluated as a significant step taken in the midst of data scarcity and uncertainty. In addition to the decision made, the Fed's communication will also hold a critical place for investors.