Stocks across the board dropped sharply after Fed Chair Jerome Powell warned that the central bank has not yet decided on whether cut rates during the December Federal Open Market Committee (FOMC) meeting.
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On Wednesday, the Fed voted to cut rates by 25 bps, although two of the 12 voting members dissented. Fed Governor Stephen Miran favored a 50 bps cut, while Kansas City Fed President Jeff Schmid voted to keep rates unchanged.
December Rate Cut Odds Plunge
Powell added that today’s rate cut was a risk management move, although the decision in December will be influenced by the state of the labor market and inflation. Powell said that AI has contributed to layoffs and could hamper job creation in the future, although these effects have yet to show up in initial jobless claims data. In addition, he noted that the Fed has widely differing forecasts on data that will guide December’s decision.
Following Powell’s comments, the odds of a 25 bps rate cut in December on CME’s FedWatch tool plunged to 67% from 90.5%.
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