The Fed Cuts Rates by 25 Basis Points, U.S. Government Shutdown May See a Turnaround
FastBull FeaturedSummary:
The Fed cuts rates by 25 bps; The U.S. government shutdown may see a turnaround early next week; Bank of Canada hints at end of rate-cutting cycle......
[Quick Facts]
1. The Fed cuts rates by 25 bps and ends quantitative tightening, with two dissenters.
2. Due to the government shutdown, salaries for U.S. House of Representatives staff will be suspended.
3. The U.S. government shutdown may see a turnaround early next week.
4. EU-Ukraine upgraded trade agreement officially takes effect.
5. South Korea and the U.S. reach trade agreement; South Korea to invest $350 billion in the U.S.
6. FOMC shows increased divergence; Powell downplays December rate cut expectations.
7. Bank of England credit report shows consumer demand remains strong.
8. Bank of Canada hints at end of rate-cutting cycle; money markets price in no rate cuts before March 2026.
[News Details]
The Fed cuts rates by 25 bps and ends quantitative tightening, with two dissenters
On Wednesday, the Federal Reserve passed a rate cut resolution with a 10-2 vote, lowering the benchmark interest rate by 25 basis points to 3.75%-4%. Federal Reserve Governor Stephen Miran opposed the decision, advocating for a 50-basis-point cut instead. Kansas City Fed President Jeffrey Schmid favored keeping rates unchanged.
The monetary policy statement announced that the Fed will cease quantitative tightening starting December 1st, at which point maturing agency debt will be reinvested into Treasury bills. The statement continued the previous characterization of the labor market, stating that "Job gains have slowed this year, and the unemployment rate has edged up but remained low through August. " Recent indicators are consistent with these changes, with downside risks to employment having increased in recent months. Available data indicate that economic activity is expanding at a modest pace, and the statement reiterated that inflation has risen since the beginning of the year and remains relatively high.
Due to the government shutdown, salaries for U.S. House of Representatives staff will be suspended
On October 29th, local time, staff of the U.S. House of Representatives were notified that they would not receive their salaries, originally scheduled for October 31st. The notice stated that due to the funding lapse, the Office of the Chief Administrative Officer is not authorized to issue paychecks until Congress passes a temporary funding resolution or the fiscal year 2026 appropriations bill, and it is signed into law. Unlike Senate employees, who are paid twice a month, House staff are paid once a month, making the impact more immediate.
The U.S. government shutdown may see a turnaround early next week
According to Politico, after nearly a month of shutdown, the situation in the U.S. government finally seems to be turning. Imminent key deadlines, along with external pressures, are adding new urgency to bipartisan talks that have been stalled for weeks. Senate Majority Leader John Thune and his allies, House Speaker Mike Johnson, and other House Republican leaders appear increasingly convinced that a growing number of centrist Democrats are ready to compromise on a temporary funding bill to mitigate the shutdown's effects—possibly as early as next week. Republican leaders are discussing a new temporary funding bill, with dozens of options on the table, including providing temporary funding to the government until around January 21st or even as late as March.
EU-Ukraine upgraded trade agreement officially takes effect
On October 29th, local time, the European Commission issued a statement, saying that as of the 29th, the upgraded Deep and Comprehensive Free Trade Area (DCFTA) agreement between the EU and Ukraine has officially taken effect. The upgraded agreement restricts the EU's imports of sensitive agricultural products, includes strong new safeguard clauses, and stipulates the harmonization of production standards between Ukraine and the EU. On October 13th, the Council of the EU issued a statement announcing that the Council had voted to approve a resolution to lower or eliminate tariffs on Ukrainian dairy products, fresh fruits and vegetables, meats, and other agricultural goods within the EU-Ukraine Association Committee. This resolution stems from a preliminary agreement reached on June 30, 2025, during the EU-Ukraine DCFTA review, aiming to build a long-term mutually beneficial trade framework.
South Korea and the U.S. reach trade agreement; South Korea to invest $350 billion in the U.S.
According to foreign media reports, after months of negotiations, the United States and South Korea have finally reached a trade agreement. South Korea will invest $350 billion in the U.S., including $200 billion in phased cash investments. The annual investment cap is set at $200 billion. In addition, a South Korean presidential advisor stated that the U.S. will maintain a 15% general tariff on South Korea, reduce the auto tariff to 15%, and South Korea will receive most-favored-nation treatment on pharmaceutical tariffs.
FOMC shows increased divergence; Powell downplays December rate cut expectations
According to a research report from CITIC Securities, the Federal Reserve's October meeting rate cut of 25 basis points was in line with market expectations. Powell's assessment of the economic situation is similar to that of September, noting significant divergence within the FOMC on whether to continue cutting rates in December, and stating that a December rate cut is not a certainty. However, not cutting in December would require the U.S. government to return to normal operations and the release of economic data that does not support further cuts—a higher threshold than continuing to cut. Moreover, among the current 12 voting members in 2025, more still favor a December rate cut, and it is expected that December may be a "close call". The Fed is expected to cut rates by another 25 basis points at its next meeting. After Powell downplayed rate cut expectations, the U.S. dollar and Treasury yields rose, while U.S. stocks and gold saw some setbacks. It is expected that the market may continue to trade on the theme of reduced rate cut expectations in the short term.
Bank of England credit report shows consumer demand remains strong
Andrew Wishart of Berenberg Bank noted in a report that the Bank of England's credit report showed that both net mortgage borrowing and net mortgage approvals in the UK rose in September, indicating that consumer demand remains strong. He said, the data shows that the central bank's monetary policy has failed to suppress demand or bring inflation down to the 2% target level. However, Wishart believes that the budget to be announced on November 26 may tighten fiscal policy, thereby curbing inflationary pressures. He stated that if the budget shows upfront fiscal tightening, the Bank of England may cut rates three times in the first half of 2026.
Bank of Canada hints at end of rate-cutting cycle; money markets price in no rate cuts before March 2026
On Wednesday, the Bank of Canada lowered its key overnight rate to 2.25%, the lowest since July 2022, in line with market expectations, and hinted that this may mark the end of its rate-cutting cycle unless there are changes in the inflation and economic outlook.
Bank of Canada Governor Tiff Macklem stated that this easing policy aims to help the economy cope with disruptions caused by U.S. tariffs while keeping inflation near the 2% target. At the same time, the Bank of Canada lowered its economic growth forecasts for this year and next from 1.8% to 1.2% and 1.1%, respectively, citing the impact of U.S. trade policies. The Bank of Canada estimates inflation at 2% in 2025 and about 2.1% in 2026.
"There's still a fair amount of uncertainty about what is the impact of U.S. tariffs on the Canadian economy. How does the structural change play out? So what all that means is, yes, we've published an outlook today, but there is a wider than usual range of outcomes around that outlook," Macklem said. After the Bank of Canada's rate decision, the Canadian dollar strengthened, and money markets are pricing in no rate cuts before March 2026.
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