MNI: Fed Cuts Interest Rates 25BPS, QT To End Dec 1

Federal Reserve officials lowered interest rates by a quarter percentage point Wednesday, citing downside risks to the labor market, and declared an end to asset runoffs that have significantly reduced the central bank's balance sheet from its post-crisis peak.

The Fed said it would end its quantitative tightening program on December 1. After that, the central bank will roll over all principal payments from its Treasury and mortgage-backed bond holdings. In a change from previous practice, it will roll over MBS principal payments into Treasury bills -- signaling a desire to shorten the average maturity of its asset base. 

Two policymakers dissented against the FOMC's decision to reduce the federal funds rate to a range of 3.75-4%, the second rate cut this year. Governor Stephen Miran preferred a half point rate cut while Kansas City Fed President Jeffrey Schmid thought the central bank should keep rates on hold. 

The Fed said job gains have slowed and unemployment has edged up but remained low through August, adding in the absence of official government data due to the shutdown that "more recent indicators are consistent with these developments."

On inflation, the FOMC said it "has moved up since earlier in the year and remains somewhat elevated."

U.S. CPI, the only major data release to come out this month, showed inflation rising 3.0% in the year to September. As of August, the unemployment rate stood at 4.3%, up from 4% at the start of the year.

Fed officials have been trying to make sense of an apparent disconnect between strong economic growth and weakening employment, which has become more difficult to interpret since the supply of labor has been severely restricted by more stringent U.S. immigration policy. 

The Fed's rate cut comes as President Donald Trump continues his search for a replacement to Fed Chair Jerome Powell, whose term as chair expires in May of 2026.