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• The Fed Cuts 25 bps Again. What's Next for December?

The Fed Cuts 25 bps Again. What's Next for December?

The Federal Reserve has cut its benchmark interest rate by 25 bps at the FOMC meeting of 29–30 October, bringing the Fed Funds Rate (FFR) to 3.75%–4.00%.
This decision was in line with market expectations and was driven by signs of a slowdown in the US labour market.

However, following two consecutive rate cuts since September, the policy direction heading into the December FOMC meeting remains unclear. Here are three important things to watch.

1. December Cut? Still a BIG question
Although The Fed is beginning to ease policy, the likelihood of a rate cut in December is far from certain.
One reason is the scarcity of economic data due to the prolonged shutdown, which has left the Fed without sufficient statistical footing to assess economic conditions comprehensively.
- The probability of a December rate cut has fallen from 90% to 71%.
- The Fed appears to want to wait for more consistent data releases before continuing with easing.

2. Tariff effect is still in play
The Trump administration's reciprocal tariff policy remains an important variable.
Rising import costs could push US inflation higher again, whilst also restraining growth through increased prices for consumer goods and production inputs.

If these cost pressures intensify, The Fed could become more cautious in continuing to cut interest rates.

3. No more quantitative tightening
The Fed has announced it will end Quantitative Tightening (QT) starting 1 December.
Maturing government bonds will be rolled over, rather than allowed to run off the balance sheet.
The objective is clear:
- To maintain money market liquidity,
- To prevent pressure on government bond supply, and
- To stabilise short-term financing conditions.

Market Reaction: Yields Rise, Dollar Strengthens
Following Powell's remarks, markets became volatile again:
- US10Y rose from 3.97% to 4.07%,
- DXY moved back towards the 100 level.

For Indonesia, this effect appeared in the form of:
- ID10Y returning to around 6.0%,
- Rupiah weakening to IDR 16,566/USD.

This response was understandable given that shifts in Fed policy expectations often have a direct impact on capital flows and emerging market sentiment.

Conclusion
The Fed's rate cut delivers a signal of easing, but the path forward is not linear.
With incomplete economic data, inflationary pressures from tariffs, and shifts in balance sheet policy, the Fed's December decision will remain dependent on rapidly evolving market dynamics.

For Indonesia, the Fed's moves remain one of the key external variables — particularly for Rupiah stability, the direction of bond returns, and foreign capital flows.