The Federal Open Market Committee (FOMC) wrapped up its October 29, 2025, meeting with a 25 basis point interest rate cut, lowering the federal funds target range to 3.75%–4.00%. This is the second rate cut of the year, highlighting the Federal Reserve’s growing concern over slowing economic momentum and a weakening job market.
In a significant policy shift, the Fed also announced it will pause its balance sheet reduction program (quantitative tightening) starting December 1, 2025, citing liquidity concerns and tighter money market conditions.
According to the official statement, the economic outlook remains uncertain, with rising downside risks to employment and inflation still slightly above the 2% target. Policymakers reiterated that future decisions would be data-driven and assessed “meeting by meeting,” given the ongoing data disruptions caused by the federal government shutdown.
The decision was not unanimous—some FOMC members preferred maintaining rates due to lingering inflation risks, while others advocated for deeper cuts to support growth.
Markets responded positively, interpreting the move as a sign the Fed may continue easing if economic data weakens further. The combination of lower rates and a halt in balance sheet runoff suggests a more supportive liquidity stance for households and businesses. However, the Fed still faces the challenge of balancing inflation control with efforts to stimulate growth.
For emerging economies like Pakistan, the Fed’s decision could bring temporary relief through reduced capital outflows and lower debt servicing pressures, though currency and bond market volatility may persist depending on future policy actions.
Overall, the October FOMC meeting marks a strategic shift from tightening to cautious easing, reflecting the Fed’s intent to stabilize the economy amid ongoing uncertainty and mixed inflation signals.
