With the government shutdown limiting the quantity of economic data available to markets and policymakers, the central bank’s Federal Open Market Committee (FOMC) enacted a widely anticipated 25 basis point cut for the short-term federal funds rate. This marks the second consecutive cut this fall, and the move decreases the policy rate to an upper rate of 4.25%. Reflecting that the market anticipated this policy move, long-term rates were relatively unchanged after the FOMC announcement.

There were two dissenters to today’s decision:

• New Fed Governor Miran, who preferred a larger 50 basis point reduction
• Kansas City Fed President Schmid, who wanted no federal funds rate reduction

Chair Powell noted that there were “strongly differing” views at this meeting with respect to December policy action, with a possibility of no further cuts before the end of the year.

Commenting on current economic conditions, the FOMC statement noted that “economic activity has been expanding at a moderate pace.” In his press conference, Chair Powell noted that activity in the housing market remains “weak.” As a justification for monetary policy easing, the FOMC stated that “job gains have slowed this year.” On the other side of the policy mandate, the Fed specified that “inflation has moved up since earlier in the year and remains somewhat elevated.”

Going forward, if labor market conditions continue to weaken, the Fed will continue to ease — at some point. However, future cuts are likely to be more hotly debated given the current rate of inflation. 

Chair Powell noted that there is “no risk free path for policy” in this kind of environment. Amid bifurcated market signals and economic conditions (particularly with respect to differentiated high-income and low-income consumer spending patterns), the vote at the December meeting will be contested. And the ongoing lack of data may cause the Fed to move more slowly as a precaution.

NAHB Chief Economist Dr. Robert Dietz provides more details in this Eye on Housing post.