In a widely anticipated move, the Federal Reserve on Wednesday reduced its benchmark interest rate by 25 basis points to a target range of 3.75%-4.00% and announced a halt to the runoff of its security holdings starting in December.

In its Wednesday meeting, the Federal Open Market Committee said it would stop reducing its holdings of Treasury and agency mortgage-backed securities on Dec. 1, marking the end of the quantitative tightening program that began in mid-2022.

The Fed's balance sheet, once nearing $9 trillion at its peak, has since declined to $6.59 trillion.

“The Committee decided to conclude the reduction of its aggregate securities holdings on December 1,” the statement says.

The unwinding of the balance sheet — a key tightening tool in recent years — had steadily removed liquidity from the financial system. Ending it suggests the Fed is positioning for a more accommodative stance in 2026.

Board Split Widens

The decision to reduce rates was not unanimous. Two FOMC members dissented: Governor Stephen I. Miran preferred a deeper 50-basis-point cut, while Kansas City Fed President Jeffrey R. Schmid supported keeping rates unchanged.

The Fed noted that economic growth remains "moderate," but acknowledged softening in the labor market and persistent inflation pressures.

"Job gains have slowed this year, and the unemployment rate has edged up but remained low through August," the statement said. It added that inflation "has moved up since earlier in the year and remains somewhat elevated."

With unemployment slightly above 4% and inflation around 3% year over year, the Fed appears to be navigating a fine line between supporting growth and preventing inflation from reaccelerating.

All Eyes On Powell's Presser

Fed Chair Jerome Powell is scheduled to hold a press conference at 2:30 p.m. ET. Investors will be laser-focused on any signals about future cuts, especially with growing speculation of another rate reduction at the Fed's December meeting.

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Image created using artificial intelligence via Midjourney.