The 25bp Fed rate cut on Wednesday was divisive, with the most dissents since 2019. Scope Ratings views it as a wrong decision partially influenced by political and market pressure. Jerome Powell’s departure next May could widen divisions in the FOMC, raising concerns about the politicization of the Fed.

Despite data lapses and elevated inflation post-government shutdown, Fed doves have dominated recent decisions. With rates nearing a neutral value after 175bps of easing, a temporary pause in rate reductions is advised. However, uncertainty looms over future easing under new Fed leadership, casting doubt on the reliability of current communication strategies.

Fed officials raised median 2026 growth projections to 2.3%, closer to Scope’s 2.4% estimate. Despite lower inflation assumptions, the strong US economy and mixed labor-market data suggest the rate cut on Wednesday may not have been necessary.

Six FOMC participants favored no rate change this week, while Stephen Miran predicted at least 150bps of cuts next year. The US President criticized the 25bp cut as insufficient, highlighting differing views within the committee on future monetary policy.

Fed officials approved monthly purchases of USD 40bn in short-term treasury securities to maintain ample bank reserves, reversing the quantitative tightening of recent years with a return to slight quantitative easing.

Global long-dated government bond yields hit levels last seen in 2009 this week, reflecting market expectations of a pause in US rate cuts amidst concerns about rising global debt, inflation, and tighter monetary policy.

Read more at Yahoo Finance: A Divided Federal Reserve Cuts 25bps as an Announcement of a New Fed Chair Looms