Driving in the Fog – Fed Signals Uncertainty Amid Shutdown

The recent Federal Reserve meeting on 10/29 delivered no surprises—until it did.

As expected, the Fed cut the Fed Funds rate by 25 basis points, bringing it down to

3.75%. Markets had fully priced in this move, so bond prices and mortgage rates

remained largely unchanged. But it was Fed Chair Jerome Powell’s comments during

the live press conference that caught everyone’s attention.

When asked about the likelihood of another rate cut in December, Powell responded,

“It’s not a foregone conclusion—far from it.” He explained that the ongoing government

shutdown has created a data blackout, making it difficult to assess the true state of the

economy, especially in terms of jobs and inflation. Without reliable data, Powell said, the

Fed must proceed cautiously. “You know, what do you do if you are driving in the fog?”

he asked. “You slow down.”

Fed Voting Breakdown

The decision to cut rates wasn’t unanimous. The vote was 10-2:

 Stephen Miran voted for a deeper cut.

 Jeffrey Schmid voted for no cut at all.

The Fed’s voting body consists of 12 members: the seven members of the Board of

Governors and five of the twelve regional Federal Reserve Bank presidents (who serve

on a rotating basis, except for the New York Fed President who always votes). A simple

majority—7 out of 12—is needed to approve any change to the Fed Funds rate.

Powell noted “strongly differing views” among members and even mentioned a “growing

chorus… feeling like maybe this is where we should at least wait a cycle” before making

further cuts. That comment alone shifted market expectations, suggesting the Fed may

be nearing a pause in its rate-cutting cycle.

The Government Shutdown: A Growing Concern

The ongoing government shutdown is now directly impacting the Fed’s ability to make

informed decisions. A Continuing Resolution (CR) is needed to reopen the government,

but political gridlock in the Senate has stalled progress. While the House passed a

“clean” CR, the Senate has failed 13 times to reach the 60-vote threshold needed to

overcome a Democratic filibuster.

Senate Democrats are using the vote to push for unrelated policy goals—most notably,

extending provisions of the Affordable Care Act. Senate Minority Leader Chuck

Schumer has said that even public pressure from federal worker unions won’t change

his party’s stance.

Meanwhile, the SNAP program (food assistance) expired on November 1, affecting

42 million Americans. This could be the pressure point that finally forces action in

Congress.

Final Thought

Until the shutdown ends and economic data resumes, the Fed is, in Powell’s words,

“driving in the fog.” And like any cautious driver, they’re easing off the gas.

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