Macro Horizons Falling Back
Oct 31, 2025
Ian and Ben dive into the recent Fed rate cut and the implications of Powell's messaging on market expectations. They explore the impact of the government shutdown on data reliance and the Fed's transition away from quantitative tightening. The duo discusses potential outcomes for December cuts and the challenges of overly aggressive market pricing. Tariffs and their inflationary effects are examined, alongside a forecast for the upcoming Treasury auction sizes. Lastly, they highlight an upcoming Supreme Court decision that could introduce further economic uncertainty.
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Fed Cut Moves Policy Toward Neutral
- The Fed cut 25 bps and signaled policy is moving toward neutral around 3–4%.
- Markets may still be unsure whether December will see another cut, keeping price action muted.
Powell Discouraged Overpriced Cuts
- Powell deliberately pushed back on markets pricing larger cuts to prevent overreaction.
- That communication tightened front-end pricing and made December less of a done deal.
QT Ends; MBS Rolled Into Bills
- The Fed ends QT on December 1 and will reinvest maturing MBS into bills.
- That shift modestly boosts front-end liquidity and addresses recent funding stress.