September CPI comes in lighter than expected
The September Consumer Price Index showed that President Donald Trump's tariff policies have had a muted impact on cost pressures – and all but guarantees the Federal Reserve will lower the federal funds rate on Wednesday afternoon.
According to the Bureau of Labor Statistics, headline CPI was up 0.3% month over month in September, slower than the 0.4% rise seen in August and the 0.4% increase economists expected.
The CPI was 3.0% higher year over year, a quicker pace than the month prior. Still, the results arrived below the 3.1% increase economists anticipated.
Gas prices were the biggest contributor to the increase in headline CPI, surging 4.1% from August to September. Food costs were also up last month, rising 0.2%.
Core CPI, which excludes volatile food and energy prices and is seen as a better measure of underlying inflation trends, rose 0.2% month over month and 3.0% year over year – coming in below August's figures and economists' forecasts.
"Inflation might not be slowing, but it's not surprising to the upside anymore," says David Russell, global head of market strategy at TradeStation. "The details are positive, with shelter and transportation services moderating. Some key parts of the basket are cooling even if tariffs nudge items like apparel higher."
Russell adds that the September CPI report keeps the Fed on track to cut rates by a quarter-percentage point at next week's meeting, and will likely have policymakers striking a more dovish stance moving forward.
While delayed from its originally scheduled October 15 reporting date, the BLS released today's data so that the Social Security Administration could calculate the cost-of-living adjustment (COLA). But with data collection services still suspended, it's unclear when we'll see the next CPI report.
- Karee Venema
With over a decade of experience writing about the stock market, Karee Venema is the senior investing editor at Kiplinger.com. She joined the publication in April 2021, and oversees a wide range of investing coverage, including content focused on equities, fixed income, mutual funds, ETFs, macroeconomics and more.
Fed meeting schedule for 2025 and 2026
The next Fed meeting, which runs from October 28 to October 29, marks the seventh gathering of 2025. That means there's one more to go after that.
"The committee meets eight times a year, or about once every six weeks," writes Kiplinger contributor Dan Burrows in his feature, "When Is the Next Fed Meeting?".
The Federal Open Market Committee "is required to meet at least four times a year and may convene additional meetings if necessary," Burrows adds, noting that "the convention of meeting eight times per year dates back to the market stresses of 1981."
Fed meetings last two days and wrap up with the release of a policy decision at 2 pm Eastern Standard Time. This is typically followed by the Fed chair's press conference at 2:30 pm.
Here is the full Fed meeting schedule for 2025:
- January 28 to 29
- March 18 to 19
- May 6 to 7
- June 17 to 18
- July 29 to 30
- September 16 to 17
- October 28 to 29
- December 9 to 10
And here's the full Fed meeting schedule for 2026:
- January 27 to 28
- March 17 to 18
- April 28 to 29
- June 16 to 17
- July 28 to 29
- September 15 to 16
- October 27 to 28
- December 8 to 9
- Karee Venema
Expect more rate cuts in 2026, says BMO
The September CPI report all but locks in quarter-percentage-point rate cuts in both October and December, says Douglas Porter, chief economist at BMO Financial Group.
"Looking a bit further ahead into 2026, we suspect that the near-absence of serious tariff-related inflation sets the stage for additional cuts," the economist adds. "After all, core goods prices, the very area one would expect tariffs to affect, rose a moderate 0.2% last month and 1.5% in the past year. True, that's up from essentially no inflation in this category in the decade up to 2020, but it's not the shape-shifting pace that many analysts expected in the wake of double-digit tariffs."
Porter adds that moderating shelter inflation – it rose just 0.2% on a monthly basis in September after a 0.4% rise in August – should have headline and core inflation averaging annual increases of just below 3% next year.
As such, he's expecting an additional 75 basis points of rate cuts in 2026, bringing the federal funds rate south of 3% when all is said and done.
- Karee Venema
Wall Street shouldn't expect a half-point rate cut anytime soon
Today's mostly benign inflation report for September should make the Federal Reserve more comfortable with cutting short-term interest rates by another quarter-point at their policy meeting on October 29.
Although September employment data has not been published because of the ongoing federal government shutdown, the Fed will assume that the labor market weakness shown in the August report is continuing, which justifies a rate cut.
It seems likely that the Fed will also cut by a quarter point at its December 10 meeting before pausing. However, those who are expecting a half-point cut at either of these two meetings are likely to be disappointed.
Read more: Kiplinger Inflation Outlook: Stable for Now, but With Signs of Increasing Tariff Pressure
- David Payne
David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/Global Insight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce.
It's a big week ahead for Wall Street
Next week will be a busy one on Wall Street. In addition to the Fed meeting, market participants will also have a jam-packed earnings calendar to sift through.
Among the most notable names reporting are Alphabet (GOOGL) on Wednesday evening, and Amazon.com (AMZN) and Apple (AAPL) after Thursday's close.
"So far, Q3 results are off to a good start – S&P 500 earnings are up around 9% year over year, marking the ninth straight quarter of growth, the longest streak since 2018," says Raymond James Chief Investment Officer Larry Adam. "Plus, 82% of companies are beating EPS estimates – the best showing since Q3 2023."
Additionally, President Donald Trump is scheduled to talk with Chinese President Xi Jinping on Thursday ahead of the APEC summit in South Korea. Trade tensions between the two countries have escalated in recent weeks, though Adam notes that this appears to be posturing ahead of the November 10 trade deadline.
"Neither side wants to look weak, but neither wants a repeat of the turmoil earlier in the year," Adam says. "While it's unrealistic to expect the Trump-Xi meeting to resolve all issues, even a shift toward calmer rhetoric could help move negotiations forward."
- Karee Venema
Stocks notch new highs ahead of Fed week
The three main indexes finished at record highs on Friday. At the close, the Dow Jones Industrial Average was up 1.0% at 47,207, the S&P 500 was 0.8% higher at 6,791, and the Nasdaq Composite had gained 1.2% to 23,204.
Over in the bond market, the 2-year Treasury yield slipped 2 basis points to 3.48% and the 10-year Treasury yield ticked up 8 basis points to 3.997%, both near their lowest level of the past 12 months.
- Karee Venema
Who gets to vote at the October Fed meeting?
The Federal Open Market Committee (FOMC) has 12 total members, eight permanent and four who rotate each year.
The eight permanent voting committee members include the Fed chair and vice chair, the five Fed governors and the president of the New York Fed.
Four regional Fed presidents are rotated in each calendar year.
The 2025 FOMC voting committee consists of:
- Fed Chair Jerome Powell
- Vice Chair Philip Jefferson
- Fed Governor Michael Barr
- Fed Governor Michelle Bowman
- Fed Governor Lisa Cook
- Fed Governor Stephen Miran
- Fed Governor Christopher Waller
- New York Fed President John Williams
- Boston Fed President Susan Collins
- Chicago Fed President Austan Goolsbee
- St. Louis Fed President Alberto Musalem
- Kansas City Fed President Jeffrey Schmid
In 2026, the presidents from Cleveland, Philadelphia, Dallas and Minneapolis will rotate in as FOMC voting members, according to the Federal Reserve.
- Karee Venema
Barclays economists expect two more rate cuts in 2025 and two in 2026
Ongoing elevated downside risks to the labor market will likely encourage the Fed to cut interest rates by a quarter-percentage point on Wednesday, say Barclays economists.
The group expects Fed Governor Stephen Miran – who voted for a half-percentage-point cut in September – to dissent once again in favor of a 50 basis-point reduction.
"We expect hawks to support the cut but would not be surprised if [Kansas City Fed President Jeffrey] Schmid or [St. Louis Fed President Alberto] Musalem dissented in favor of an unchanged rate," the Barclays economists add.
And given the risks to the labor market and little change in inflation, the group is anticipating another rate cut in December and two more in 2026 – at the Fed's March and June meetings.
The economists say there's a possibility that the FOMC will announce the end of quantitative tightening, which Fed Chair Jerome Powell hinted at in a recent speech, on Wednesday afternoon, but think this is more likely to occur in December.
- Karee Venema
Will the Fed cut rates in October?
The Federal Reserve is widely expected to cut interest rates at its October 28-29 meeting as inflation holds steady and downside risks to the labor market remain.
As of October 25, CME Group FedWatch showed futures traders are pricing in a 98.3% probability the FOMC will lower the federal funds rate by 25 basis points (0.25%) to a range of 3.75% to 4.0%. This would mark its lowest level since late 2022.
- Karee Venema
Economic growth remains strong, according to S&P Global
S&P Global said Friday that "U.S. business activity growth accelerated in October to the second-fastest so far this year." This is according to its flash Purchasing Managers Index (PMI) data, with both its Services PMI and Manufacturing PMI hitting a two-month high in the initial October reading.
"Improvements in output and new work were recorded in manufacturing and services, though both sectors signaled falling exports," S&P Global stated in its report. "Factories also reported falling input buying amid a steep drop in backlogs of work and an unprecedented build-up of unsold stock."
The data also showed that employment growth improved, though the pace of job creation was "modest" and job growth was "limited by a worsening of business confidence, principally reflecting ongoing concerns over the impact of government policies."
Chris Williamson, chief business economist at S&P Global Market Intelligence, said that despite signs of continued economic growth, business confidence is deteriorating amid worries over the impact of policies, most notably tariffs.
As one example of the struggles businesses are facing, manufacturing input costs remain high due to tariffs, but companies "often reported difficulties passing higher costs on to customers in the face of subdued demand and intense competition."
- Karee Venema
How can you invest for lower interest rates?
With the Federal Reserve expected to cut rates at its two final meetings of 2025, many investors may be wondering how they can prepare their portfolios.
One way is to seek out high-quality growth stocks, which tend to see outsize benefits from lower interest rates.
This happens for two reasons, says Kiplinger contributor Charles Lewis Sizemore, CFA. For one, lower rates make capital cheaper and "young, fast-growing companies often rely on external funding."
Additionally, lower interest rates boost the current value of future profits, which increases valuations for firms with long-term earnings potential.
Read more: How to Invest for Fall Rate Cuts by the Fed
President Trump announces 10% tariffs on Canada
After calling off trade talks with Canada on Thursday night in response to a television ad featuring excerpts from one of former President Ronald Reagan's national radio addresses, President Donald Trump said he is implementing an additional 10% tariff on the country.
No other details were given in Trump's Truth Social post other than this 10% tariff will be "over and above what they are paying now."
"Just to recap," says Douglas Porter, chief economist at BMO Financial Group, "the U.S. has imposed a 50% tariff on steel and aluminum, up to 25% tariff on vehicles, a 45% tariff on lumber."
Porter adds that he expects the Bank of Canada to cut its key interest rate at its meeting this week (October 29) due to these deteriorating trade conditions.
- Karee Venema
What time will the Fed statement be released and what changes are expected?
The Federal Open Market Committee will release its updated policy statement at 2 pm Eastern Standard Time on Wednesday, October 29.
"Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated," the committee wrote in its September statement.
This time around, Deutsche Bank economists anticipate several changes based on what Fed Chair Powell had to say during his October 14 speech at the National Association for Business Economics Annual Meeting.
"Based on the data that we do have, it is fair to say that the outlook for employment and inflation does not appear to have changed much since our September meeting four weeks ago," Powell said in his speech. "Data available prior to the shutdown, however, show that growth in economic activity may be on a somewhat firmer trajectory than expected."
As such, Deutsche Bank economists "expect the Committee to tweak the first line in a slightly more hawkish direction by stating, 'Preliminary indicators suggest that growth in economic activity has firmed since the first half of the year.'"
The group believes the FOMC will leave the mention of "elevated" economic uncertainty unchanged in the second paragraph of the statement, but they expect the committee to announce the end of its balance sheet runoff program, or quantitative tightening, in the third paragraph.
- Karee Venema
How well do you know the Fed?
Fed meetings have become key events on Wall Street after inflation hit a pandemic-induced 40-year peak in 2022 – which forced the central bank into an aggressive rate-hiking campaign that lifted the federal funds rate to its highest level in more than two decades.
But how well do you know the Fed?
With the next Fed meeting on deck, we decided to test your basic knowledge of the Federal Reserve and how its actions impact you and your money.
Stocks are set to start Fed week at new highs
The three main stock market indexes are all pointed higher ahead of Monday's opening bell as upbeat U.S.-China trade headlines boost sentiment.
Reports from over the weekend suggest the two countries have hashed out a framework for a trade deal ahead of this Thursday's meeting between U.S. President Donald Trump and Chinese President Xi Jinping.
"We are moving forward to the final details of the type of agreement that the leaders can review and decide if they want to conclude together,” U.S. trade representative Jamieson Greer told reporters Sunday. The negotiations included export controls and reciprocal tariff extensions.
At last check, Dow Jones Industrial Average futures were up 0.5%, the S&P 500 futures were 0.8% higher, and futures on the Nasdaq-100 jumped 1.3%. On Friday, the indexes ended the week at new record closing highs.
The bond market has it right, says Manulife John Hancock Investments strategists
Manulife John Hancock Investments Co-Chief Investment Strategists Emily Roland and Matt Miskin will be watching the 2-year Treasury yield and the U.S. dollar this Fed week.
While the strategists say there is no perfect predictor of Fed policy, the yield on the 2-year government bond note has proven to be one of the best.
The yield is currently hovering around 3.5% – near its lowest level in the past 12 months – and the strategists think a more dovish Fed could send it even lower.
"The bond market is currently pricing in 2 more cuts in 2025 and then three more in 2026," write Roland and Miskin in emailed commentary. "To us, this seems about right. They want to keep cutting to get closer to neutral, but want to save some cutting dry powder in case they need it." And the central bank still has plenty of room to ease, if needed, the pair adds.
Roland and Miskin also note that this week's Fed meeting could have big implications for the U.S. dollar. "A dovish Fed could cause the U.S. dollar to further weaken," they say.
As for the stock market, the two admit that elevated market valuations remain a concern, but "strong earnings growth, the Fed doing insurance cuts, and a potential trade deal are all positives reinforcing the recent strong global equity performance."
- Karee Venema
Bessent talks about Jerome Powell's replacement
Jerome Powell's term as Fed chair will expire on May 15, 2026. While it seemed possible earlier this year that President Trump might consider firing Powell before his term was up, this is unlikely to happen given the limited time left.
That said, we may have more solid clues as to who Jerome Powell's replacement will be by year's end.
On Monday, Treasury Secretary Scott Bessent said that the list of potential candidates to replace Powell as Fed chair has been pared down to five: current Fed Governors Christopher Waller and Michelle Bowman, National Economic Council Director Kevin Hassett, former Fed Governor Kevin Warsh and BlackRock executive Rick Rieder.
Bessent is conducting interviews with the candidates and said he will send a final list to President Trump after the Thanksgiving holiday.
Earlier today, Trump told reporters that he expects to name the top pick by the end of 2025.
For what it's worth, Powell's term as a member of the Board of Governors of the Federal Reserve ends on January 31, 2028.
- Karee Venema
Fed Chair Powell and his purple ties
The odds of an October rate cut are high. It's also a safe bet that Fed Chair Powell will be wearing a purple tie during Wednesday's press conference.
That's because Powell always wears a purple tie … and there's a reason for it.
During an early April Q&A session with journalists at the Society for Advancing Business Editing and Writing conference, Powell was asked about the significance of his purple ties.
"At the beginning, the only significance was that I like purple ties," Powell replied. At his next press conference, he said he went to reach for a red or blue tie and thought, "Maybe not … so I wind up wearing purple."
He said now it's become "a thing," and it supports the fact that the Fed "is strictly non-political" and "bipartisan," and purple is a good color for that.
"Plus, I like purple ties," Powell concluded.
- Karee Venema
Where are all the Fed speakers right now?
The Fed-speak is non-existent right now. That's by design. And, setting aside arguments about correlation vs causation, markets are behaving well in the silence.
Since Saturday, October 18, and until Thursday, October 30, participants in the FOMC meeting have been bound by a Federal Reserve policy that limits the extent they can talk about the economy and interest rates.
These two-week "blackout periods" begin the second Saturday that falls 10 days before the next FOMC meeting and end the Thursday that follows the meeting. The Fed's blackout period was an unofficial practice that began in the 1980s. It was formalized in 2011 and reaffirmed in January 2025.
Fed-watchers see the policy as a measure against corruption and the potential for information leaks to distort markets. It also provides cover for open discussion during the Fed's most intense periods of policy-making.
Here is a schedule for all blackout periods through January 2027.
During the current quiet period, the S&P 500 is up 2.9%, the Dow Jones Industrial Average is 2.7% higher and the Nasdaq Composite has gained 4.0%.
- David Dittman
David is the former managing editor and chief investment strategist of Utility Forecaster and the former editorial director of Investing Daily, Charles Street Research, and Weiss Ratings. A former stockbroker, David has been working in financial media for more than 20 years.
When is Jerome Powell speaking?
Fed Chair Powell will host a press conference at 2:30 pm Eastern Standard Time on Wednesday, October 29.
Barclays economists expect Powell to reiterate, as he did in his October 14 speech, that there has been little change in economic conditions since the central bank last met in September.
"He will likely note that growth in economic activity may be on a somewhat firmer trajectory than expected, due to AI-related investments and a resilient consumer," the group says.
However, they believe he will emphasize that "downside risks to employment remain elevated," and will "reiterate that the slower job gains reflect in part immigration restrictions and aging."
The economists also think the Fed chair will point out that weak shelter inflation helped the September CPI report come in below expectations, tariffs have increased prices on certain goods and will likely lift prices on other goods down the road.
That said, Barclays economists believe Powell will underscore the importance of keeping longer-term inflation expectations anchored and making sure that one-time price increases due to tariffs do not become "an ongoing inflation problem."
- Karee Venema
When is Trump meeting with Xi?
U.S. President Donald Trump will meet with Chinese President Xi Jinping this Thursday, October 30, while attending the APEC summit in South Korea.
"Recall that trade tensions have risen ahead of the meeting with China threatening to raise restrictions on rare earth supplies and President Trump responding with 100% tariffs on China set to begin on November 1," say Deutsche Bank economists. "Note, also, that the original trade truce negotiated last summer expires November 10."
However, Treasury Secretary Scott Bessent, following his meeting with Chinese Vice Premier He Lifeng, said that the two countries worked out "a very successful framework for the leaders to discuss on Thursday."
The negotiations reportedly included discussions on export controls, TikTok, soybean purchases and rare earths.
Bessent also said that he believes the November 10 reciprocal tariff deadline could be extended following the talks, but that decision ultimately rests with President Trump.
Still, as Deutsche Bank economists note, given the lack of economic data releases, the Trump-Xi summit is one of several substantial headline risks for market participants to contend with this week.
- Karee Venema
Stock futures point higher as Fed meeting kicks off
The stock market is signaling a higher open as the October Fed meeting kicks off. The Federal Open Market Committee will conclude its gathering tomorrow afternoon, with the central bank widely expected to announce its second straight rate cut.
At last check, Dow Jones Industrial Average futures were up 0.5% on well-received earnings from health care giant UnitedHealth Group (UNH). S&P 500 futures were 0.1% higher and Nasdaq-100 futures have risen 0.2%.
This follows Monday's positive price action, which sent the three main indexes to new record highs.
Bank of Canada, Bank of Japan and the ECB also meet this week
This week is a busy one for global central banks. The Bank of Canada will announce its latest policy decision tomorrow, October 29.
"We've long been on the dovish end of consensus for the Bank of Canada in 2025," says Robert Kavcic, senior economist at BMO Capital Markets. And with a soft economy and job market, "another rate cut at this meeting would be consistent with that view.
The Bank of Japan is expected to hold rates steady at its gathering on Thursday, October 30, but BlackRock strategists will be watching "for hints of the timing of a next hike."
The European Central Bank (ECB) will also announce its policy decision on Thursday. "The October ECB meeting should be a placeholder, with no rate change and only fine-tuning of communication," says the BofA Securities Global Rates & Currencies Research team. "We still expect a cut in December and March, but conviction on December is getting smaller."
Looking ahead, the Bank of England (BoE) could lower interest rates next Thursday, November 6, following last week's lower-than-expected inflation print. However, the central bank may wait until the late-November release of Chancellor Rachel Reeves's Autumn Budget.
"While a cut in November is more likely after [the] latest inflation data, it's by no means guaranteed," says Hal Cook, senior investment analyst at Hargreaves Lansdown.
- Karee Venema
Consumer confidence edges lower in October
The Conference Board's Consumer Confidence Index slipped to 94.6 in October from September's upwardly revised 95.6 reading.
The Present Situation Index, which measures consumers' opinions on current business and labor market conditions, rose 1.8 points to 129.3, while the Expectations Index, which tracks the short-term outlook for business, income and labor market conditions, fell by 2.9 points to 71.5.
"Consumer confidence moved sideways in October, only declining slightly from its upwardly revised September level,” said Stephanie Guichard, senior economist, global indicators at The Conference Board. "Consumers were a bit more pessimistic about future job availability and future business conditions while optimism about future income retreated slightly."
Confidence fell the most for those under 35 and those making less than $75,000 per year. It saw the biggest improvement from consumers aged 35 to 54 and those making over $200,000.
"Consumers' write-in responses were led by references to prices and inflation, which continued to be the main topic influencing consumers' views of the economy," added Guichard. "References to U.S. politics were up notably, with the ongoing government shutdown [was] mentioned multiple times as a key concern."
The report also showed that survey respondents' plans to buy used cars increased in October, while home-buying plans decreased. Additionally, consumers suggested they will spend less for the holidays this year.
- Karee Venema
Who appointed Jerome Powell as Fed chair?
Jerome Powell stepped into his role as Fed chair on February 5, 2018, after being nominated by then-President Donald Trump, who was serving his first term in the White House.
Powell's initial four-year stint as head of the Federal Reserve ended in 2022, but he was reappointed for a second four-year term on May 23, 2022, after being nominated by then-President Joe Biden.
Powell initially joined the Fed's Board of Governors in 2012 after he was nominated by then-President Barack Obama.
While Powell's second term as Fed chair will expire in May 2026, he will remain on the Fed's board until January 2028.
- Karee Venema
Should you open a CD ahead of the Fed announcement?
Demand for certificates of deposit (CDs) has been on the rise in recent years, thanks to elevated interest rates, which weighed on stock market returns and had investors seeking out less-risky options.
With the Fed unlikely to start cutting interest rates until September, now could be an ideal time to lock in attractive yields on CDs.
The difference in yields on short-term and long-term CDs is minimal at the moment, so if you do decide to open a certificate of deposit, your choice between the two could rest with how long you're able to lock up your cash.
Remember that when putting your money into certificates of deposit, you're unable to access it until the CD matures. If you do withdraw funds ahead of time, you'll be charged a fee.
Read more: Should You Get a Long-Term or Short-Term CD Before the Next Fed Meeting?
How did the economy do in Q3?
The first reading on third-quarter gross domestic product is supposed to be released ahead of Thursday's open, but we're unlikely to see it due to the ongoing government shutdown.
Still, a strong start to third-quarter earnings season tells "a good story" for GDP during the three-month period, says Scott Helfstein, head of investment strategy at Global X.
"It will be interesting to see whether the Fed will change language around the health of the U.S. economy," Helfstein adds. "Fed Chair Powell has been emphasizing the mounting risk to the labor market, but the real-time GDPNow numbers suggest growth is better than expected."
According to the Atlanta Fed, GDPNow is "a running estimate" of real gross domestic product growth based on the economic data available for that period. And the latest estimate from October 27 shows GDP growth of 3.9% – exceeding the strong GDP growth of 2.8% we saw in Q2.
- Karee Venema
Stock futures signal new highs on Fed Day
Stock futures are signaling a higher start Wednesday morning, which would put the main indexes on track to surpass the record highs hit on Tuesday.
At last check, Dow Jones Industrial Average futures were up 0.1% on strength in Nvidia (NVDA). Shares in the AI chip giant have gained more than 3% in premarket trading, putting the company on track to surpass a $5 trillion market capitalization, after President Trump said he will discuss Blackwell chips with Chinese President Xi Jinping at tomorrow's meeting.
S&P 500 futures are 0.2% higher and Nasdaq-100 futures have risen 0.3%.
"Investors are experiencing one of the most commanding momentum-driven markets since the internet," says Eric Teal, chief investment officer for Comerica Wealth Management. "The AI innovation is viewed as transformative, and the market's forward multiple is reflective of this optimism, topping 23 times."
While the bulk of these market returns have come courtesy of tech stocks, Teal notes that the "Fed easing cycle is now serving as an additional catalyst to spur valuations higher."
- Karee Venema
FHN Financial's senior economist expects a rate cut, QT announcement when the Fed meeting concludes this afternoon
"We expect the Federal Reserve will again cut the fed funds target rate by 25 basis points at the meeting this week," says Sophia Kearney-Lederman, senior economist at FHN Financial.
While the economist notes that there has been "a dearth of government data due to the federal government shutdown," she believes the central bank's assessment that downside risks to the labor market and upside risks to inflation likely haven't changed much since the September meeting.
As for the economic reports we have seen, Kearney-Lederman points to the private sector data from ADP, which hinted at continued slowing in payroll creation. And "the September CPI, the only government data to be released this month, showed inflation that remains above the Fed's target but that is not rapidly rising, with both headline and core inflation at 3.0% year-on-year."
Considering there has been little change to the labor market and inflation picture, the economist expects "the Fed to ease again as another risk management cut in support of the labor market, particularly considering the federal government shutdown adds downside risk to the labor market."
Kearney-Lederman is also in the camp that believes the Fed will formally announce the end to quantitative tightening this week, which is expected to begin in December.
"The Fed began shrinking its balance sheet in June 2022 with the intention to end balance sheet runoff when reserves were somewhat above what it judged to be ample reserve conditions," she explains. And with Chair Powell suggesting in a speech earlier this month that the end of QT "may arrive in the coming months, we think an official plan for ending QT could be announced this week."
- Karee Venema
Where can I watch Fed Chair Powell's press conference?
Fed Chair Jerome Powell's press conference will begin at 2:30 pm Eastern Standard Time this afternoon.
The presser can be viewed on the Federal Reserve's website or on the Fed's YouTube channel.
Pending home sales hold at a strong pace
Pending home sales held steady in September, matching the strong pace seen in August. Specifically, the National Association of Realtors' pending home sales index was unchanged from August, arriving at 74.8.
"Inventory has climbed to a five-year high, giving home buyers more options and room for price negotiation," says Dr. Lawrence Yun, chief economist at the National Association of Realtors. Still, "signings have yet to fully reach the level needed for a healthy market" as a weakening job market offsets a "record-high stock market and growing housing wealth."
The Northeast and South saw the largest increases in pending home sales, up 3.1% and 1.1%, respectively. The Midwest saw the largest decline, with activity down 3.4% vs August.
The "strong print in the largest regional housing market in the country, the South, could indicate that home sales will continue to improve, especially considering the recent decline in mortgage rates," says Raymond James Chief Economist Eugenio Alemán and Economist Giampiero Fuentes.
However, the economists note that "the housing market will continue to be a drag on economic activity during the next several quarters."
- Karee Venema
Nvidia stock trades above the $5 trillion market cap level
The U.S. stock market is trading in record-high territory ahead of this afternoon's Fed announcement, boosted by a rally in mega-cap tech stocks.
Nvidia (NVDA) is making one of the more notable moves today, with the semiconductor stock up 2.8% at last check, on track to become the first company to close with a $5 trillion market cap.
As for the main indexes, the Dow Jones Industrial Average is up 0.6%, the S&P 500 is 0.3% higher, and the Nasdaq Composite has added 0.6%.
Over in the bond market, the 2-year Treasury yield is up 1.2 basis points at 3.506%, while the yield on the 10-year Treasury is 1.4 basis points higher at 3.997%.
- Karee Venema
Consumer confidence continues to slip
The Fed is looking at a crunch from multiple angles as it tries to control for inflation while balancing employment data and assessing the impact of tariffs. But it's also facing political pressure, as President Donald Trump has stoked suspicion of the group's decision-making and Americans, long tired of inflated grocery prices, look for explanations. Political pressure, I should note, that Chair Jerome Powell has stalwartly denied being impacted by.
Trendlines show that consumer confidence is on a downward trajectory. As senior investing editor Karee Venema reported earlier in this blog, the Conference Board recently announced their Consumer Confidence Index reading had dropped in October, especially for those under age 35 and making less than $75,000.
More research released today, from WalletHub's Economic Index, seemed to underscore this slipping confidence. The WalletHub Economic Index reported a 9% decrease between this October and last, with a 17.6% decrease in respondents' likelihood of buying a home in the next six months and a 16.6% decrease in likelihood of buying a car in the next six months.
"It demonstrates that people are not optimistic about their financial future," said WalletHub analyst Chip Lupo. "People who have low financial confidence are likely to spend less money, make fewer large purchases, and pay down less debt than people with high confidence."
- Alexandra Svokos
Alexandra has been with Kiplinger since 2023, after earning her MBA at NYU Stern, specializing in finance and management. Before Kiplinger, she helped managed news coverage as senior editor at ABC News' website and covered news and politics for Bustle and Elite Daily.
The Fed's October decision
"The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months," the Fed said in its press release.
The Fed also decided it will no longer reduce its portfolio of securities as of December 1. The December 1 end concludes, for now, a more than three-year process of shrinking the Fed's balance sheet that began in June 2022. The Fed will still have about $6.5 trillion in its portfolio, substantially above the $4.5 trillion 10 years ago, before the pandemic.
Amongst the voting members, 10 voted in favor, while two voted against: Stephen I. Miran, President Trump's recent appointee, wanted a half-percent cut, and Jeffrey R. Schmid "preferred no change to the target range."
What does this mean for stocks?
It will be interesting to see how the market reacts while Powell is speaking.
Everyone expected the 25 basis point cut. Presumably, Wall Street will want to hear strong hints of another in December, and an open door to more in 2026.
- Jim Patterson
Jim is the managing editor of The Kiplinger Letter and The Kiplinger Tax Letter. He joined The Kiplinger Letter in December 2010, covering energy and commodities markets, autos, environment and sports business, and previously covered federal grant funding and congressional appropriations for Thompson Publishing Group.
Reading the Fed's portfolio decision
While the overall runoff is ending, the Fed will continue to allow mortgage-backed securities (MBS) to mature. However, starting December 1, it will begin reinvesting the proceeds into Treasury securities.
This will shift the composition of its portfolio toward a higher concentration of Treasuries over the long run, consistent with its longer-term goal of minimizing its role in specific credit sectors like housing.
- David Payne
Will the rate cut bring down mortgage rates?
The end of shrinking the Fed's balance sheet seems like it ought to pull down mortgage rates, at least a little.
Shrinking it required other buyers to soak up all the Treasury debt issuance, which, all things being equal, should push up yields. So now that they have stopped doing that, I would expect that to lower bond yields, again, all things being equal.
But at the moment, the yield on the 10-year Treasury is up, not down. Not by a lot, admittedly, but still.
It's important to remember that while the Fed's decisions can influence things like savings accounts and short-term lending rates, mortgage rates tend to follow the 10-year Treasury yield more closely.
- Jim Patterson
Read more: How Does the 10-Year Treasury Yield Affect Mortgage Rates?
Chair Jerome Powell begins answering questions
Fed Chair Jerome Powell has begun taking questions at his press conference.
Asked bluntly if he is not comfortable with financial markets assuming the Fed will cut rates again at its meeting in December, Powell hedged, noting that there are "strong views" among the Fed's Open Market Committee, and that a cut is not a foregone conclusion.
He emphasized in his opening statement that the Fed faces a quandary now, with risks of bother rising inflation and rising unemployment. For now, the Fed believes the greater danger is to the labor market, which is why the Fed cut interest rates today.
But, "going forward is a different thing," suggesting the Fed could pass on cutting rates in December.
Markets have dropped a fair amount in the past few minutes, I presume in response to the "not a foregone conclusion" commentary.
- Jim Patterson
The Fed has only one tool, so have to choose only one of the between jobs and inflation goals at any one time.
- David Payne
Assessing data during the government shutdown
Asked how the Fed is assessing the labor market and the need for potential further rate cuts during the government shutdown, when normal federal unemployment data aren't being reported, Powell struck a cautiously optimistic note. He pointed to other, non-federal data, such as weekly unemployment benefit claims, that can still provide a meaningful read on the labor market.
And for now, Powell thinks those available data are not showing a significant risk of rising unemployment. He indicated that the signal suggests the labor market is holding steady, for now: "I don't want to say stable, but it's not clearly declining quickly."
If the shutdown ends soon, some of the regular data will become available, but otherwise they will have to rely on sources like the Fed's Beige Book.
- Jim Patterson and David Payne
Powell on inflation goal
Powell emphasized that the Fed is "absolutely committed" to hitting its 2% inflation goal. September's Consumer Price Index showed overall inflation running at 3%, though that was slightly less than economists had been expecting.
Powell said that, looking at the individual components of inflation, the Fed believes that current price increases linked to tariffs on imported goods are the major reason why overall inflation is notably higher than the Fed's 2% target. If — a big if — those tariff impacts fade, Powell seems to think that inflation should fall close to the 2% target that has eluded the Fed for several years now.
- Jim Patterson
Powell on other forces
When facing questions on the government shutdown, Powell seems to be trying not to criticize it. He keeps, instead, saying "data is unavailable."
He was also asked about the impact of AI, and specifically some recent layoff announcements related to AI potentially taking over jobs. Powell said AI could affect hiring or layoffs, but he doesn't see the impact on initial unemployment claims yet. He did say, though, that the Fed is concerned about a bifurcated economy, where lower income people are struggling while higher income people are pumping consumption.
- David Payne
Inflation and tariffs
Asked how much longer inflation will show upward pressure specifically due to the new tariffs that Washington has imposed on imported goods, Powell estimated that it could continue into 2026.
The impact of higher prices on imports typically takes months to work their way through to consumers, he explained. However, he added that once that process works itself out, inflation should start falling again, assuming that the tariff impact is a one-time effect, as opposed to setting off a cycle of new inflation because consumers start expecting prices to keep rising.
"This is how we believe and hope it will work out," he said. Considering how much harder the Fed's job would become if unemployment ticks up while inflation is rising, Powell was not kidding about the "hope" part.
- Jim Patterson
Powell on artificial intelligence
On the topic of artificial intelligence and whether investment in AI chips and data centers is keeping the economy afloat, Powell downplayed that concern. He acknowledged that AI spending is definitely one source of growth, but added that consumer spending overall is still strong, and that matters more than the billions tech firms are investing in AI capacity.
Powell noted that it may be primarily high-income consumers who are doing the spending these days, as folks on the lower end of the income spectrum are pulling back. And of course, those are the consumers who also tend to be the investors benefiting from the boom in AI-related stocks. If that boom turns to bust, those affluent consumers may rethink their spending habits.
- Jim Patterson
Why would the Fed not cut rates in December?
A few reasons. For one, they've already cut rates quite a lot. For another, Powell indicated different committee members have different views on what the neutral rate is (and there were two dissents in the votes this time around).
Plus, they're now 1.5 percentage points closer to neutral than they were a year ago, and some think they should wait and see for a while.
- David Payne
Overall impressions of Powell's press conference
Chair Powell's press conference has now ended, as he affirmed the Fed's decision to cut rates but stated a December cut was not a foregone conclusion. He communicated his view of the economy, despite lacking reporting due to the government shutdown, and once again avoided landmines of criticizing anyone or anything that could cause trouble. Powell indicated the Fed believes unemployment is a greater risk to the economy than inflation, at least for now, and he also indicated some concern about a bifurcated economy between lower- and higher-income people.
Spending by wealthy households "wouldn't drop sharply unless there was quite a sharp drop in the stock market," Powell said in answering whether he thought elevated stock prices are helping to prop up the economy right now. Generally speaking, the wealthy don't spend additional dollars they accrue when their portfolios gain value as readily as lower-income people do when their wages go up, he said. And in general, Powell said that the Fed does not pass judgment on whether any given level of the financial markets is right or wrong.
Still, he acknowledged that, to some extent, today's consumer spending is powered by the consumers who are doing best financially. Considering how much stocks and other asset prices have risen in the past couple of years, that seems like something to keep in mind going forward.
- Jim Patterson and David Payne
Stocks close mixed after Fed, bond yields climb
Stocks gave up early gains Wednesday after Fed Chair Powell suggested a December rate cut is "not a foregone conclusion." At the close, the Dow Jones Industrial Average was down 0.2% at 47,632 and the S&P 500 had shed 0.3 point to 6,890. The Nasdaq held on for a 0.6% gain to finish at 23,958 on strength in Nvidia.
Over in the bond market, the 2-year Treasury yield climbed 10.2 basis points to 3.596% and the yield on the 10-year Treasury rose 9.3 basis points to 4.076%.
- Karee Venema
Read more: Dow, S&P 500 Slip on December Rate Cut Worries, Nvidia Boosts Nasdaq: Stock Market Today