As expected, the Federal Reserve on Wednesday cut its target rate cut by ¼ point to a 4.0%-to-4.25% range. The drop marks the second rate cut this year, following the drop in the policy rate in September. A third cut by 2025’s close, however, is less likely, according to Fed Chairman Powell.

“There were strongly differing views about how to proceed [at the next policy meeting] in December,” Powell said during a news conference following the Fed’s rate-cut announcement. “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”

The bond market quickly took the hint and sold off, driving yields higher. The policy-sensitive 2-year rate, for example, shot up on Wednesday to 3.60%, a three-week high.
 

Fed funds futures are still pricing in moderately high odds that favor another rate cut at the Dec. 10 meeting, but the implied probability is 72%, which leaves room for debate about how the end of the year unfolds.

Part of the reasoning for possibly pausing on rate cuts is the delay in new economic reports due to the government shutdown. “What do you do if you’re driving the fog? You slow down,” Powell said, referring to the postponed numbers, such as the monthly payrolls report for September which remains in hiatus.

The lack of new economic numbers is “very concerning,” former Bureau of Labor Statistics commissioner Erica Groshen told Fortune, noting that the Fed is “flying blind.” She explained: “If policymakers build systems around data that can vanish overnight, that’s a real vulnerability for economic governance.”

The special release of consumer inflation data for September showed headline CPI rising 3.0% year-over-year, the highest since January. But Powell expressed a degree of optimism that to the extent that pricing pressure is rising due to tariffs, it will be a one-time effect that won’t push up inflation much longer beyond what’s already been seen.

“Inflation away from tariffs is actually not so far from our 2% goal,” Powell said. He advised that central bankers are looking for signs that tariffs only lead to one-time price increases for certain consumer products.

Despite the uncertainty linked to delayed data, weakness in hiring will likely keep the Fed on a rate-cutting path, predicts Jeffrey Roach, chief economist for LPL Financial. “The downside risks within the job market will likely ensure the Fed will continue to cut rates in December and throughout the next year,” he reasoned in a press release sent to CapitalSpectator.com.
 

The critical variable in the days and weeks ahead is how the Treasury market reacts. Was Wednesday’s rise in yields a one-off event? Or will the bond ghouls push yields higher and put more pressure on the Fed to forgo rate cuts?

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