TL;DR (Summary)
1. This was a defensive easing, not a victory lap. The Fed cut to 3.75–4.00%, citing “uncertain outlook,” “labor market cooling,” and “data gaps.” It wasn’t a celebration of victory over inflation; it was a precautionary slowdown—avoiding a crash in the fog.
2. The FOMC decision is split, and not just mildly. One camp wants deeper cuts, another wants none, and Powell sits awkwardly in the middle. This kind of directional division guarantees volatility at every meeting going forward.
3. No new dot plot or SEP this round. Markets are forced to extrapolate from September’s guidance—“maybe one more cut this year, but no promises.” October’s tone simply magnified the phrase “maintain optionality.”
4. The Fed even slowed (if not paused) balance sheet runoff, which amplifies the dovish impact of the 25bp cut. The full pricing of that won’t show up until the funding markets digest it over the next few sessions.
5. Trading takeaway: this is “cautious easing + communication ceiling.” Risk assets initially rallied, then Powell’s “December not a done deal” crushed sentiment. The smart play is not to bet on direction, but on the path of easing probabilities.
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1. The Fed: Forced to cut, pretending it didn’t want to.
The October 29 meeting came on a painfully awkward timeline:
• They had just cut rates in mid-September (4.00–4.25%).
• Then came the data blackout from the government shutdown—no clean unemployment data, CPI distortions, erratic Treasury issuance.
• Labor was softening but not collapsing—tech and logistics layoffs stacking up.
• Inflation stayed sticky above 2%, especially in services, nowhere near the “soft landing” ideal.
A normal central bank would’ve chosen to pause and talk dovish. But the Fed still cut—25bp, back-to-back—because:
1. Driving in the fog. Powell’s own analogy. Without clear data, they prefer to slow down.
2. Political and public pressure tilted toward “make borrowing cheaper.” They didn’t want to appear forced, so they took the smallest easing increment possible—a reluctant surrender disguised as prudence.
3. September minutes already hinted at rising employment risks. October was merely executing that pre-signal.
So, no, this isn’t a floodgate opening. It’s a “reduce risk of over-tightening, without admitting defeat on 3% inflation” move.
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2. Fed's Great Divide: Three rate paths hiding in one meeting
Within the statements and press conference, you can read three factions:
1. The “no more cuts” hawks – mostly regional presidents defending inflation credibility.
2. The “go 50bp now” doves – focused on tightening credit and labor slack.
3. Powell’s middle lane – 25bp, while keeping December optional.
That division keeps pricing uncertain—no 2020-style one-way rally. It’s a trader’s paradise, not an investor’s comfort zone.
Key nuances:
• “December not a sure thing” mattered more than the 25bp itself—it’s a slap to over-eager swap markets pricing three cuts by year-end.
• Yet they also didn’t shut the door. The repeated “data-dependent” phrasing is the classic Fed way to say “we want flexibility.”
Trader translation:
“Here’s a small gift. Don’t assume you’ll get another one. Bet if you want—your loss, not my fault.”
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3. Policy details: beyond rates, the framework softened
Besides lowering the funds rate to 3.75–4.00%, the Fed also adjusted ON RRP and IORB rates. Three takeaways:
1. They want money-market rates to stay pinned near the floor. As QT winds down and Treasury issuance surges, short-end volatility was creeping up—they’re pre-emptively pulling it lower.
2. Verbal restraint + operational cushioning. They keep “December uncertain” to curb front-running, while quietly easing conditions.
3. The real dovish kicker: from December 1, balance sheet reduction pauses. That’s a stealth form of liquidity injection. Dual easing—rates + QT pause—but calibrated.
Market translation:
• Short end grinds lower, but slowly.
• Mid-curve (5Y–10Y) steepens modestly on the “QT pause” narrative.
• Dollar reaction depends on other CBs—this alone won’t crush it.
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4. Continuity with September: October is just the footnote
There’s no official October minutes yet, only the October 8 release of the September minutes. Those already planted every line Powell just read out:
1. “Labor market rebalancing faster than expected.” → morphs into October’s “rising employment risk.”
2. “Premature easing may reignite inflation.” → becomes Powell’s “December not guaranteed.”
3. “Maintain flexibility amid potential data revisions.” → exactly fits the shutdown’s data fog.
So October isn’t a pivot—it’s an echo.
• September said: “We’re near the easing corridor, but don’t get excited.”
• October said: “We eased again, but you still shouldn’t get excited.”
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5. Market structure: trade like you know the game
A proper macro read divides this into three axes: front-end, curve, risk & FX.
a) Front-end (FF, SOFR, options)
• The 25bp is priced; December odds are the playground.
• Play the oscillation of probability—fade euphoric cuts, buy back when fear spikes.
• Structurally, short-dated payer spreads work—sell the tails, keep the belly.
b) Yield curve
• Slowing QT = long-end relief.
• Inflation not dead = capped rally.
• Expect a mild bull-steepener 2s10s move, gradual not violent.
• Cross-market context (ECB/BoE) matters—if they lag, the dollar leg resists.
c) Risk assets & USD
• Day-one = risk-on burst.
• Press conference = Powell wipes smiles.
• DXY knee-jerk up, then fades—direction dictated by global relative policy.
• Core takeaway: “Fed pivot” becomes a floor narrative—each sell-off finds comfort in “the Fed’s already easing.”
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6. Narrative framing: what kind of easing cycle is this?
Not 2020’s panic easing.
Not 2019’s neat insurance trio.
This is closer to 2015–16 reversed:
• Then they wanted to hike but couldn’t.
• Now they don’t want to cut but must.
• Global demand is soft, inflation sticky, fiscal messy.
• Rates remain higher than pre-COVID, preserving optionality to re-tighten later.
Macro traders should frame it as:
“October FOMC confirmed the cautious-easing path opened in September but denied a linear cutting cycle.
Internal discord means each meeting will be a fresh repricing event.
This is a market for trading tempo, curve shape, and volatility—not binary direction.”
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7. Tactical trade set-ups
1. Rates | USD OIS 1x2 Dec–Jan: play December uncertainty, fade over-priced cuts, keep exposure to January follow-through.2. UST Curve | 2s10s tactical steepener: QT pause + one more potential cut supports a tactical bull-steepening. Tight stop above post-FOMC highs.
3. USD | Fade the knee-jerk: if DXY pops on Powell’s caution, fade it—policy stance remains net-dovish.
4. Equities | Buy dips, not breakouts: not a celebratory easing; sell rallies capped by “December optionality.”
5. Credit | IG over HY: Slow-growth easing favors quality carry; HY spread compression stalls, IG remains resilient.
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8. Likely lines in the upcoming minutes
Expect phrasing like:
• “Several participants emphasized a more cautious pace amid data interruptions.”
• “A few members favored larger policy accommodation to avert nonlinear labor deterioration.”
• “Some noted that market pricing of further easing may constrain flexibility.”
• “Participants broadly supported slowing balance-sheet reduction to maintain money-market stability.”
Translation: all dovish, wrapped in bureaucratic camouflage.
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9. On More Macro Risks
1. Data rebound: if November data prove the labor market stronger, the market will see October as a “premature cut.”
2. Inflation flare-ups: energy or tariffs could flip “patience” back to “pause.”
3. Prolonged data blackout: increases uncertainty premium in rates.
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10. Fed-speak decoded
• Cautious easing channel → cutting while pretending not to.• Policy optionality → no commitment, maximum wiggle room.
• Data blackout period → polite excuse for “we don’t know what’s happening.”
• Divergent FOMC → “members expressed a range of views on the appropriate pace of easing.”
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In short: The Fed is easing under duress, dressing it up as discipline.
Volatility isn’t over—it’s institutionalized.
