Consensus was expecting a hawkish rate cut, and while it got the cut, the hawkish elements - more dissenters, higher dots, a pushback by Powell during the presser - did not not materalize, and instead we have a low-grade revolt by the non-voters at the Fed (6 dots for unch today, only 2 dissents, more 3 dots expecting a rate hike in 2026), yet that will be promptly snuffed by whoever Trump picks to replace Powell next May.

In fact, one can say that today's meeting was much more dovish than expected when accounting for the $40BN in T-Bill purchases coming in two days (just as we said would happen) which was a very contrarian call. And not only was this announced by a NY Fed implementation, but Powell decided to put that right in the statement, something that has not happened since the liquidity crunch after covid in early 2020.

With that in mind, let's take a look at some kneejerk reactions from Wall Street traders and strategists:

David Mericle, Head of US Econ at Goldman Sachs:

Mike Cahill, Macro FX Research at Goldman:

This all looks very close to GS expectations, so will come down to Powell's presentation in the press conference. I'm most interested in how he characterizes the debate on the Committee and risks to the labor market--what would it take for them to be ready to move again. Most notably to me in that context, they've kept their forecast for the Q4 unemployment rate average at 4.5%. That implies a much slower rate of increase than we've been seeing lately. The current rate is 4.44%, so this requires a little less than 5bp a month to meet the median. 7ppl expect it too move up to 4.6-4.7, which would be in line with the recent average. The GDP forecast for this year also implies they are penciling in a pretty big hit to growth in Q4 and a decent transfer into next year so a sizeable hit from the shutdown presumably. On net, I would characterize that labor market forecast as optimistic rather than obviously hawkish, but it will depend on how much weaker it would need to be to get the Committee to reconsider that "extent and timing" of additional easing. I expect Powell will convey that the hurdle is relatively high given the 6 soft dissents already, but will see whether he brings up some of those risks more than he did in October.

Anna Wong, Bloomberg Chief Economist: 

“We assess the overall tone of the statement and updated projections as leaning dovish — though there are some hawkish undertones. On the dovish side, the committee sharply revised up the growth trajectory while lowering the inflation outlook, and kept the dot plot unchanged. The FOMC also announced the commencement of reserve-management purchases. On the other hand, there’s a signal in the policy statement that suggests the committee is inclined for an extended hold.

Even though the dot plot shows just one 25-bp cut in 2026 — markets are pricing two — our view is that the Fed will end up cutting by 100 bps next year. That’s because we anticipate weak payroll growth and currently see scant signs of an inflation resurgence in the first half of 2026.”

Ira Jersey, Bloomberg Rates Strategist

“What the Federal Reserve seems to have forgotten is that reserve balances are either ample, or not. If the Fed wants to maintain an ample supply of reserves, I’m still unsure why it isn’t considering temporary open-market operations around tax days and other periods when reserve balances tend to fall as the TGA rises. Doing permanent operations is more difficult to explain to market participants, and although we understand the need for slow increases on the asset side of the balance sheet -- similar to, but larger than, pre-2007 operations -- we think using traditional repos to calibrate reserve demand would be a good way to right-size asset purchases.”

Seema Shah, Principal Asset Management:

“With the recent scarcity of economic data and the wide dispersion in neutral rate estimates, it is hard to imagine any level of confidence in the economy that would lead to unanimous Fed voting. We expect the Fed to pause and assess the lagged effects of prior tightening. While some additional easing is likely in 2026, it will probably be marginal and contingent on greater confidence—and evidence—regarding the health of the US economy.”

Matthew Luzzetti, chief US economist at Deutsche Bank:

"I'd want to ask Chair Powell if the committee has already internalized some of the weakness expected in next week’s belated jobs data. I’d like to get confirmation from the chair today."

Raphael Thuin, Tikehau Capital: 

“With limited visibility on the data path, policymakers are forced to balance softening labor signals against the need to keep inflation moving lower. The result is greater policy uncertainty—likely a key driver of market volatility as we approach 2026.”

Jim Bianco, Bianco Research:

"A big issue is that the US will have a new Fed chair next year. And the new chair may be perceived as having a political agenda. That’s why I wanted to see more dissents to signal that they were ready, willing and able to be that political break. Maybe they will once we get that new Fed chairman but then that looks political that they didn’t take the chance to do it before the new guy came.”

Richard Flynn, Charles Schwab UK

“By acting pre-emptively, the Fed is signaling caution in the face of mounting downside risks, particularly as global growth remains sluggish and policy uncertainty persists. For investors, this is a measured adjustment rather than a dramatic pivot. While the cut could offer near-term support for risk assets, and potentially fuel a seasonal ‘Santa rally’, volatility is likely to remain elevated as markets assess the implications for future policy and the broader economic outlook.”

Source: Bloomberg

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