FRS step back…

25 – 31 october 2025

The main news. The US Federal Reserve’s Open Market Committee (FOMC) cut the rate by 0.25 percentage points for the second time in a row, to a level of 3.75–4%. Interestingly, this time the voting participants were very widely distributed: Powell, Williams, Barr, Bowman, Collins, Cook, Goolsbee, Jefferson, Musalem, Waller were in favor of a 25 bp reduction. Against: Stephen Miran for a 50bp reduction. Jeffrey Schmid for keeping the rate unchanged.

Despite the fact that inflation expectations have increased significantly (see the previous review), the majority of FOMC members voted for a rate cut, which can be interpreted as a serious victory for Trump in a political battle with the financial elite. However, as soon as Trump gives some serious slack, the situation may change.

It can also be noted that although official statistics are not published, they are known to the FRS leadership. So it is possible that the FOMC members had some other considerations, quite serious ones. The cover letter and abstracts of Powell’s press conference are in the final section of the Review.

Macroeconomics. The shutdown in the USA continues, there is a limited number of data.

Mexico’s GDP -0.3% per quarter:

And -0.2% per year — the first decline since Covid:

We remind you that Mexico is the main hub for the delivery of Chinese goods to the United States. So such information may mean that Chinese exports to the United States are decreasing … however, there are options.

The official PMI (expert index of the state of the industry; its value below 50 means stagnation and decline) of Chinese industry (49.0) repeats multi-year lows (minus covid):

And, let’s add that China recognizes the economic difficulties (but not their scale).

CPI (Consumer inflation index) Australia +1.3% per quarter, the peak in 2.5 years; before the last covid outbreaks, this trend was only 13 years ago:

Housing prices for real purchase transactions in the USA +2.3% per year, the weakest dynamics since the spring of 2012:

The index of revenue in the service sector in the Federal Reserve Bank of Dallas in the USA is the worst in 16 years (not including covid):

The assessment of the current state of the business climate in Germany (IFO review) is deteriorating and approaching record lows again (excluding the brief covid failure):

The unemployment rate in Germany is at a 10-year peak (excluding covid, whose maximum, however, is only 0.1% higher than the current value):

The ratio of the number of vacancies to the number of job seekers in Japan is at least 10 years (minus covid):

The retail balance in Britain has been negative for 13 months in a row; over the past 2.5 years, it has been positive only three times – an unprecedented case in the 33-year history of the survey:

From December 1, the FRS will stop selling off previously purchased assets from its balance sheet, that is, it will further soften monetary policy (asset sales lead to a reduction in the cash supply):

The Central Bank of Japan has left its monetary policy unchanged, although 2 board members (out of 9) voted for its immediate tightening; the latter is still possible in the future if the economy and inflation are strong.

The ECB also did not change anything in its policy.

The Central Bank of Canada cut the rate by 0.25% to 2.25% and made it clear that the policy easing was over.

The main conclusions. The FRS’s cover letter on the rate:

▪️Economic activity continues to grow at a moderate pace. The rate of employment growth has slowed, and the unemployment rate has increased slightly, but remains low.

▪️Inflation has increased since the beginning of the year and remains slightly above target.

▪️The FRS notes increased uncertainty about the economic outlook and increased risks to employment in recent months.

▪️The FRS’s goal is to achieve maximum employment and inflation of 2% in the long term.

▪️The FRS completes the reduction of the QT balance sheet from December 2025.

▪️Further rate decisions will depend on incoming data on inflation, employment, and financial conditions.

▪️The FRS is ready to adjust policy if the risks to achieving the goals increase.

Powell’s theses at the press conference:

«▪️Inflation remains elevated relative to the FRS’s target.

▪️The available macro data indicates that the forecast for employment and inflation has not changed significantly since September.

▪️Before the government shutdown, the macro data showed that economic growth could be on a stable trajectory.

▪️The shutdown will put pressure on economic activity, but everything should recover after the resumption of government work.

▪️Layoffs and hiring remain at a low level.

▪️Disinflation continues in the service sector.

▪️Most indicators of long-term inflation expectations are consistent with the target.

▪️Higher tariffs lead to higher prices for some goods.

▪️The impact of tariffs on inflation is likely to be short-term. It is our responsibility to ensure that this does not become a permanent problem.

▪️The balance of risks has changed.

▪️There is no risk-free path for the FRS’s PREP

▪️At today’s meeting, there were very different opinions on how to proceed.

▪️A rate cut in December is far from a guaranteed step.

▪️Today’s FRS rate cut was related to the risk management phase.

▪️Further decisions by the FRS are already another phase.

▪️Reserves will continue to decrease as other liabilities grow.

▪️The FRS’s reserves are only slightly above a sufficient level.

▪️If we see data on the stabilization or strengthening of the labor market, this will play a role in policy decisions.

▪️The lack of an increase in the number of unemployment claims and a reduction in vacancies in the labor market indicates a gradual cooling and inspires some comfort.

▪️Data on applications for unemployment benefits at the state level indicates that the situation has remained the same.

▪️If there had been significant changes in the economy, we probably would have noticed.

▪️If the level of uncertainty is high, this may be an argument for caution in taking action.

▪️High uncertainty can be an argument in favor of caution.

▪️I do not know what macro data we will receive before the December meeting.

▪️Investments in data centers and AI are of great importance.

▪️Data center costs are not particularly sensitive to interest rate changes.

▪️The government shutdown may affect the December meeting.

▪️Driving in fog can slow you down.

▪️I’m not saying that we need to slow down, but there is a possibility.

▪️In most cases, layoffs are related to AI. Yes, this can have implications for job creation.

▪️Some FRS chairs believe it’s time to take a step back.

▪️The FRS’s rate is now at a neutral level.

▪️More and more people believe that perhaps we should wait one cycle with the decision on the pause rate in December.

▪️As for today’s rate cut, the decisive and firm vote, as well as significant differences of opinion, were actually related to future decisions.

▪️The labor market is clearly not declining at a rapid pace.

▪️We want the reserves to start growing gradually.

▪️At some point, the FRS will start building up QE reserves again.

▪️The demand for workers has dropped a little more than the supply, our tools are supporting the demand.

▪️Consumers need time to feel the impact of tariffs.

▪️The main expectation is some additional inflationary pressure from tariffs.

▪️We can get 2, 3 or 4 tenths of the inflation rate from tariffs, but it should be at a time.

▪️The current market situation is different from the dotcom era, when there was a clear bubble.

▪️If the flow of macro data remains limited and economic conditions do not change, there will be a reason to slow down the rate cut.“

Powell repeated the thesis about price increases due to Trump’s tariff policy, but since this is an obvious point, it cannot be considered as a political one. In general, Powell’s theses can be interpreted in any direction, he has become much more lenient towards the Trump administration, which, however, we have already written about in the first section.

Prices continue to rise in the global economy. Thus, the price of copper reached a historic high at auction on Wednesday. The price of metals on the London Stock Exchange increased by 1% to $11,137 per ton, surpassing the previous record of $11,104 set in May 2024, Vedomosti writes.

The price increase is caused by a combination of a number of factors, including an increase in US duties, aging deposits and disruptions in production at the world’s largest mines, The Financial Times notes. Demand for the metal is projected to grow due to the use of copper in data centers serving artificial intelligence, as well as in energy and power grid infrastructure.

Financial markets in the United States also updated historical highs this week. At the same time, an interesting paradox occurred: the S&P 500 index updated its record, surpassing the 6,900 mark, although almost 80% of its companies closed in the red. 398 out of 500 securities fell, but the growth of shares of giants like $AAPL Apple, $NVDA Nvidia and $MSFT Microsoft pulled the index up. They joke on social media that “the entire US economy is seven companies chasing trillions to each other.”

Nvidia’s $NVDA stock has just risen above $210 and already exceeds a market capitalization of $5.1 trillion.

The Buffett Index has reached a historic high of 223%, making the US market the most expensive in history. At the same time, Warren Buffett’s Berkshire Hathaway has accumulated a record $344 billion in cash, which is enough to buy 474 companies from the S&P 500 index. Experts warn that such a high indicator may mean overheating and the risk of a future collapse.

In general, it can be noted that even the Fed stopped trying to “bring down” the growing bubble with inflationary consequences. This means that the critical point, the market collapse, is gradually approaching. Although the “difficult” month of October managed to pass without any special incidents. In any case, we wish our readers a good weekend and a quiet working week.