BRIDS Macro: The Oct 25 FOMC – Our 3 Key Points

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BRIDS Macro: The Oct 25 FOMC – Our 3 Key Points

The FOMC cut the Fed Funds Rate by 25 bps to 3.75% - 4.00% in October, marking the second straight reduction in the current easing cycle. The decision passed by a 10–2 vote, with dissents in both directions for the first time in six years as Governor Miran again favored a larger 50-bps cut, while Kansas City Fed President Schmid preferred to hold rates steady after backing last month’s reduction.

We note 3 key points from FOMC:

The Fed remains divided, with members holding sharply differing views, increasing the likelihood of a policy pause in Dec’s meeting. Chair Powell’s remarks also carried a more hawkish tone than markets expected, stressing that “a further reduction in December is not a foregone conclusion.”
The continuation of the narrative that “risks to inflation are tilted to the upside, while risks to employment are to the downside, a challenging situation” suggests the Fed may adopt a more neutral policy stance ahead, reflecting a balanced assessment of risks in both directions.
The Fed announced it will end its Treasury balance sheet runoff starting Dec 1st, citing rising funding costs and tightening liquidity. Our recent observations indicate that usage of the Fed’s reverse repo facility (RRP) has dropped to nearly zero, signaling that system liquidity has become increasingly constrained.

Market impact: Following the FOMC meeting, the 10-year Treasury yield rebounded above 4%, the S&P 500 slipped 55 points to its intraday low, and the DXY climbed to an intraday high of 99.3. The probability of a December rate cut has now fallen to 67%, compared with 90% previously, a shift that warrants caution as markets reassess the Fed’s commitment to further easing.

The Fed’s latest stance reinforces our earlier view. In our Monday report, we noted that the era beyond the pivot marks a new phase where Bank Indonesia will increasingly emphasize transmission effectiveness and fiscal coordination rather than relying solely on rate cuts to sustain momentum. Moreover, the impact on yields will increasingly be driven by factors beyond policy rate decisions alone.