Markets are expecting a bigger Fed cut as officials weigh risks
The prospect of a half-point interest rate cut by the Federal Reserve gained traction this week, as traders ramped up bets on an outsized move and a key central bank official openly backed a more aggressive approach.
Federal Reserve governor Stephen Miran, a Trump appointee, said Thursday that he would favor a 50-basis-point reduction at the upcoming October 28-29 policy meeting, citing heightened downside risks from trade tensions and a restrictive policy stance.
“If monetary policy stays as restrictive as it is, and you have a shock like this hit the economy, it does materially increase the negative consequences of that shock,” Miran said.
He added that while the committee is likely to opt for a quarter-point cut, “I think that we are probably set up for three 25-basis-point cuts this year.”
Miran said the latest impasse in trade talks and China’s move to restrict access to rare earth materials have heightened uncertainty for growth. “There’s now more downside risks than there was a week ago, and I think it’s incumbent upon us as policymakers to recognize that should get reflected in policy,” Miran said.
“However, with the change to the balance of risks, I think it becomes even more urgent that we get to a more neutral place in policy quickly.”
Fed officials split on pace of rate cuts as mortgage market eyes next move
Fed chair Jerome Powell signaled that a quarter-point cut remained the base case, citing slowing hiring and persistent inflation above the 2% target. “Rising downside risks to employment have shifted our assessment of the balance of risks,” Powell said Tuesday in prepared remarks to the National Association for Business Economics in Philadelphia.
He emphasized that while inflation remains elevated, the Fed’s focus has turned to protecting the labor market from further deterioration. “The outlook for employment and inflation does not appear to have changed much since our September meeting,” Powell said.
US Fed chair Jerome Powell highlighted growing risks from weakening hiring, suggesting further rate cuts ahead. He noted that while inflation remains high, safeguarding jobs has become the central bank’s main concern.https://t.co/Y7m5WBAtWp
— Mortgage Professional America Magazine (@MPAMagazineUS) October 14, 2025
Labor market shows signs of strain
While the unemployment rate has held near historic lows, payroll gains have slowed sharply. “In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen,” Powell said.
He noted that both layoffs and hiring remain low, but perceptions of job availability among households and hiring difficulty among firms are trending downward.
ADP revealed that the private sector shed 32,000 jobs in September, while Challenger, Gray & Christmas reported 54,064 job cuts for the month. Hiring plans, meanwhile, have collapsed to the lowest level since 2009.
Diverging views on inflation and growth
Other central bank leaders echoed Powell’s concerns. John Williams, president of the New York Fed, said last week he saw “more downside risks to the labor market and employment” than to inflation, supporting a cautious approach to further rate cuts.
“My own view is that, yes, we would have lower rates this year, but we’ll have to see exactly what that means,” Williams said in an interview.
He emphasized that the central bank’s policy stance should evolve in response to incoming data, particularly if inflation edges up to around 3% and unemployment rises modestly.
“The risks of a further slowdown in the labor market is something I’m very focused on,” Williams said.
Philadelphia Fed president Anna Paulson also flagged more easing ahead, citing labor market concerns and tariff impacts.
“Given my views on tariffs and inflation, monetary policy should be focused on balancing risks to maximum employment and price stability, which means moving policy towards a more neutral stance,” Paulson said at the National Association for Business Economics Annual Meeting.
“Labor market risks do appear to be increasing—not outrageously, but noticeably. And momentum seems to be going in the wrong direction.”
Paulson, along with New York Fed president John Williams and governor Christopher Waller, has supported a gradual approach, warning that aggressive cuts could backfire if inflation remains sticky.
Chicago Fed president Austan Goolsbee urged caution, warning that the central bank faces a “sticky spot” as it tries to balance inflation and employment goals. “I’m a little wary about front-loading too many rate cuts and just counting on the inflation going away,” Goolsbee said.
Dallas Fed president Lorie Logan echoed this sentiment, stating, “We need to be very cautious about rate cuts from here and make sure that we appropriately calibrate policy so that you don’t ease conditions too much and only to have to reverse course, which would be very painful in terms of restoring price stability.”
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