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The Federal Reserve’s meeting is wrapping up today, Wednesday, October 29, 2025. The biggest expected outcome is a change in monetary policy: the central bank is widely anticipated to lower its main interest rate (the federal funds rate) by 25 basis points (or a quarter of a percentage point).
This move would set the new target rate range at 3.75% to 4.00%. Financial markets are nearly certain this will happen, with a 99% probability already factored into trading.
Rate Action and Dissent
A decision to cut interest rates is primarily focused on the weakening job market, even though the economy’s growth (GDP) was still strong at 3.8% last quarter. Policymakers seem willing to ignore inflation because they think the recent price hikes, mainly caused by new tariffs, won’t last.
However, the Fed is still deeply divided. At least one official, likely Governor Miran, is expected to formally disagree with the decision, arguing for a larger 50 basis point (half-percent) rate cut. This sharp disagreement highlights a major split: some policymakers want to lower rates faster to prevent job losses, while others are worried that cutting too much will cause inflation to rise again.
The push for a deeper cut suggests that if the next report on the job market (whenever it finally comes out after the government shutdown) is very weak, the majority of the Fed could quickly agree to lower rates more aggressively than they are planning right now.
Forward Guidance and the Critical Dot Plot Disparity
Regarding the future of interest rates, the Federal Reserve is expected to signal that it is ready to make another cut in December, a view largely shared by the market with a 94% chance priced in for another 25 basis point reduction.
However, the biggest source of risk for the financial markets lies in the major disagreement over 2026. The Fed’s own long-term projections (known as the Dot Plot) suggest a cautious approach with only 50 basis points of total cuts planned for all of 2026.
In stark contrast, market traders are expecting a much more aggressive response, pricing in at least 75 basis points of cuts, with some even anticipating as much as 125 basis points of easing by the end of 2026, which would drop the main interest rate down to 3%. This large gap shows that the market believes the Fed is moving too slowly to prevent a major collapse in the job market.
If Fed Chair Powell confirms the cautious 50 basis point path, markets that are currently counting on aggressive support will likely experience an immediate sell-off due to disappointment with the policy outlook.
Key Focus Areas and Macroeconomic Vulnerabilities
The biggest problem facing the Fed right now is the government shutdown, which is now in its 24th day. Because of the shutdown, they are missing crucial economic information, like the important September jobs report. This lack of official data has created a “data blind spot,” forcing the Fed to rely on bits of information from private companies instead.
As a result, the Fed is not likely to change its overall economic view much; it will probably just repeat its concern that the “risk of job losses has increased.”
Fed Chair Powell is expected to give a careful warning, emphasizing that the current economic growth is dangerously dependent on only three narrow things: wealthy consumers, a big wave of investment in AI, and rising stock/housing prices. This shaky foundation makes the economy very vulnerable, increasing the potential for a rapid boom or a quick, painful collapse.
Separately, regarding money management, the Fed is expected to announce a change in how it reinvests money from its assets, shifting toward buying shorter-term government bonds. This is meant to formally end its previous balance sheet reduction program (Quantitative Tightening or QT), balance its investments better, and help stabilize the short-term lending markets.
Potential Implications for the US Dollar
The immediate movement of the US Dollar will depend entirely on the relative hawkishness of Chair Powell’s commentary compared to the market’s aggressive easing expectations. The balance of risks is slightly tilted toward short-term USD upside.
If Powell stresses the elevated uncertainty, acknowledges the “healthy divergence of opinions” within the Committee, or emphasizes caution regarding inflation and the “no risk-free path for policy,” the resulting perceived policy resistance relative to market pricing could temporarily strengthen the greenback.
However, any FOMC-day USD rally is not expected to be long-lasting. The fundamental driver, the necessity for easing due to underlying labor market weakness is confirmed. Once the delayed official US data schedule resumes and validates the economic slowdown, renewed dollar softness is anticipated, continuing the longer-term depreciation trend.
Consequently, market participants should view any sharp, immediate dollar strength as a short-term mispricing of expectations, creating a potential selling opportunity against major pairs.
US Dollar Index (DXY) Daily Chart, October 29, 2025
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