FOMC October 2025: 25bp Cut with a Hawkish Twist
Press Conference UPDATE :
Key Hawkish Comments:
"A further cut in December is not a foregone conclusion, far from it"
Translation: December cut probability should DROP significantly from 89.8%
1. December Cut Uncertainty
- "Strongly differing views" on December
- "Not a foregone conclusion, far from it"
- Market Impact: December cut now 50/50 at best (was 89.8%)
2. Economy Firmer Than Expected
- "Data from before shutdown show economy could be firmer"
- Suggests less need for aggressive easing
3. Tariff Concerns
- "Higher tariffs are pushing up some goods prices"
- Could make Fed pause to assess inflation impact
- "Could be more persistent" = inflation risk
4. Balanced Stance
- "Took a more-neutral stance" on employment risks
- Confirms our read: risks stabilized, not escalating
Updated Assessment:
Original (Statement Only): Hawkish, USD +0.2% to +0.4%
After Powell: Confirmed and even more Hawkish, USD +0.4% to +0.6%
Why More Hawkish:
1. ✅ December cut "far from" certain = major repricing event
2. ✅ Economy firmer than expected
3. ✅ Tariff inflation concerns = pause risk
4. ✅ "Strongly differing views" = no consensus to cut
Market Implications:
Before Powell:
- December 25bp: 89.8% priced
After Powell:
- December 25bp should reprice to: ~50% or lower
- Terminal rate expectations: HIGHER
- USD: Stronger vs all currencies
Trading:
- Long USD aggressively (vs EUR, JPY especially)
- Sell December cut probability (if you have access to OIS markets)
- Steeper yield curve (less front-end cuts priced)
Final Verdict:
Fed is nearing end of easing cycle much faster than market expects.
Powell essentially said: "We might not cut in December, and we're debating it heavily."
This is massively hawkish relative to 89.8% market pricing.
USD target revised UP to +0.5% to +0.8% from statement/Powell combined.
After FOMC Statement(Pre Press Conference)
Decision: October 30, 2025 | 25bp cut to 3.75-4.00%
The Verdict: Hawkish Cut
Fed delivered the expected 25bp cut but with hawkish forward guidance suggesting employment risks have stabilized.
Expected USD Impact: slightly bullish
Key Changes from September
Element | September | October | Signal |
|---|---|---|---|
Employment Risk | "downside risks to employment have risen" | "downside risks to employment rose in recent months" | ✅ Hawkish (past tense) |
Job Market | "Job gains have slowed" | "Job gains have slowed this year... more recent indicators consistent" | ✅ Hawkish (stabilized) |
Vote Split | 1 dissent: Miran (wanted 50bp) | 2 dissenters: Miran (50bp) + Schmid (hold) | Slightly Hawkish (Schmid flipped) |
What Matters Most
1. Past Tense = Risks Stabilizing
September: "downside risks to employment have risen" (ongoing concern)
October: "downside risks to employment rose in recent months" (past event, now stable)
Implication: Fed sees labor market stabilizing, not deteriorating further. Supports fewer future cuts.
2. "Consistent" = No Further Weakening
October added: "more recent indicators are consistent with these developments"
Translation: Latest data confirms slowdown isn't accelerating. Employment picture unchanged since September.
3. Schmid's Hawkish Flip = Major Signal
September: Schmid voted FOR 25bp cut (4.00-4.25% → 3.75-4.00%)
October: Schmid voted AGAINST, wanted to HOLD at 3.75-4.00%
Why This Matters:
Schmid supported easing just 6 weeks ago
Now believes Fed should pause at current level
Suggests he views 3.875% (midpoint) as at or near the 3.0% neutral rate
This is a very hawkish shift in just one meeting
Vote Breakdown:
Dovish dissent: Miran wanted 50bp (more aggressive easing)
Hawkish dissent: Schmid wanted hold (pause already) — NEW
Implication: Growing FOMC sentiment that Fed is approaching end of easing cycle.
Match to Pre-Committed Scenario
Scenario Occurred: 25bp cut + hawkish guidance (approaching neutral)
Pre-Committed USD Impact: +0.2% to +0.4%
Why Hawkish:
Employment risks described in past tense (no longer rising)
Recent data "consistent" = not deteriorating
Schmid flipped from supporting cut to wanting hold = major hawkish shift within FOMC
Suggests Fed believes it's nearing 3.0% neutral rate
What We're Waiting For
1. Economic Projections (Dot Plot)
Key Question: Does 2025 year-end projection stay at 3.6% or move?
3.75% (no December cut) = Very hawkish, confirms our read
3.6% (one more 25bp) = Neutral, one more cut as previously planned
3.4% or lower = Dovish, more cuts than September
2. Powell Press Conference (2:30 PM EDT)
Watch for:
"Are we approaching the 3.0% neutral rate?" (hawkish if yes)
"Could you pause at the next meeting?" (hawkish if open to it)
How does he explain the past-tense employment language?
Relative to Market Pricing
What was priced: 25bp cut (96.7%), then 89.8% for another 25bp in December
What we got: 25bp cut + language suggesting employment risks stabilized
December cut probability drops from 89.8%
Terminal rate expectations rise slightly
USD strengthens vs EUR, JPY
Key Takeaways
25bp cut delivered as expected (96.7% priced)
Forward guidance is hawkish — past-tense employment risks = stabilized
Schmid's hawkish flip — voted FOR cut in September, now wants HOLD
Schmid's dissent may imply Fed nearing 3.0% neutral at current 3.875% rate
Expected USD: somewhat bullish on statement alone
Powell at 2:30 PM — could amplify or moderate hawkish interpretation