This week’s Fed meeting reminded me of the often-asked refrain “do you want the good news first?”

The Fed meeting started off with good (albeit fully expected) news for markets when the Fed announced a 0.25% rate cut (taking the range to 3.75-4% range). The Fed also confirmed an end to quantitative tightening (discussed in detail in this week’s client question post).

However, in short succession, the market got some “bad news” when Fed Chairman Powell splashed cold water on the idea of a December rate saying that “a further reduction of the policy rate at the December meeting is not a foregone conclusion.”

Powell reiterated the need for the Fed to remain data dependent. The two recent cuts were “risk management” cuts, pursued by the Fed to hopefully offset rising downside risks in the labor market, even if they were done a bit in advance of that weakness appearing in the employment data.

However, as the government shutdown drags on and data releases are delayed, there is less information to guide decisions and Powell noted that “could be an argument in favor of caution about moving.” The Fed does still have access to plenty of information (including state-level jobless claims data, job openings, surveys, etc). that should allow them to understand the general trend line but it is certainly not business as usual.

There was plenty of encouraging commentary in the Fed’s press conference for those hoping for another rate cut this year (namely limited impact on inflation from tariffs and low/zero job growth – both which lean in favor of further cuts) so all is not lost on that front. However, the Fed wants to moderate expectations and allow the next month and its data to chart the rate path from here – not the market’s expectations on the subject.

Markets ebbed and flowed during the announcement with equities giving up earlier gains and rates backing up slightly. Before the meeting the Fed Funds market had nearly a 100% chance of a cut in December but by today (less than 24 hours after the meeting), those odds have fallen to ~70%. Markets have been enjoying an “Up-tober” surprise and some moderation appears healthy.

A slew of earnings releases, announced large scale corporate lay offs, and a trade deal (or at least temporary truce) between the US and China also had material impacts on markets this week. As I always say – never a dull moment!

Onward we go,