Minutes from the Federal Reserve’s October FOMC meeting revealed that the committee approved its second interest rate cut of the year by a 10-2 vote, lowering the target range for the federal funds rate by 25 basis points to 3.75%-4.00%. This marks the official shift of monetary policy to a “neutral” stance. The core of the division lies in the intensity of the policy: Governor Milan advocated for a 50-basis-point rate cut to boost the economy, while Kansas City Fed President Schmid insisted on keeping rates unchanged, expressing concerns that inflation has not yet reached the 2% target.

The minutes also announced the halt of balance sheet reduction starting in December, as bank system reserves have approached the lower limit of the “sufficient level,” and continued balance sheet reduction could exacerbate market volatility. Affected by the partial shutdown of U.S. federal government agencies, the October non-farm payrolls report has been canceled, and the November data will be delayed until December 16th for release, creating an “information vacuum” for the Fed’s December decision-making.

Markets quickly revised their expectations. The CME FedWatch Tool shows that the probability of the Fed keeping rates unchanged in December has risen to 67.3%, while the probability of a rate cut has plummeted to 32.7%. Powell is facing the governance challenge of divergent opinions within the FOMC. The Wall Street Journal stated that he needs to bridge the divide amid limited information; otherwise, the Fed’s credibility could be undermined.