Fed Lowers Interest Rates but Powell Sows Doubt About December Cut

Summary

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WSJ What’s News – PM Edition

Episode: Fed Lowers Interest Rates but Powell Sows Doubt About December Cut
Date: October 29, 2025
Host: Alex Osolov
Guests: Greg Ip (WSJ Chief Economics Commentator), Alex Ward (WSJ National Security Reporter), Dylan Tokar (WSJ Regulatory Policy Reporter)

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Episode Overview

This episode focuses on the Federal Reserve's latest interest rate cut—the second in a row—along with growing uncertainty about the prospect of further cuts in December. The episode also delves into U.S. demands for increased defense spending by Asia-Pacific allies, major corporate layoffs, record-setting moments for the tech sector, and a Senate proposal to raise bank deposit insurance limits.

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Key Discussion Points & Insights

1. Federal Reserve Rate Cut and Its Uncertainty

• Latest Move: The Federal Reserve cut interest rates by 0.25 percentage points, moving the benchmark short-term rate to 3.75%-4%, the lowest in three years (00:46).
• Division Among Fed Officials:
  • Some members support further cuts.
  • Others think enough has been done; there are significant disagreements about December.
  • “Policy is not on a preset course.” — Greg Ip (01:50)
• Voting Dynamics:
  • Expected split: most supported the quarter-point cut.
  • Dissent: Fed Governor Steve Myron wanted a larger half-point cut; a Reserve Bank President favored no cut at all. (02:03)
  • “There’s strong disagreement about what to do in December.” — Greg Ip (02:20)
• Shifting Data Context:
  • In September, officials saw more cuts as likely due to weaker labor market signals.
  • Since then, labor market hasn’t further deteriorated; consumer spending, stock market, and AI-related optimism persist.
  • Not as urgent to cut further now; more officials feel rates are near the ‘sweet spot’ (02:49-03:31).
• Data Dependence and Uncertainty:
  • Lack of official labor data due to a government shutdown complicates decision-making.
  • Relying on non-official data, anecdotal evidence on layoffs, and price indicators.
  • Another cut in December is now seen as unlikely barring surprises (03:43-04:23).

2. Market Reactions and Corporate Updates

• Market Response:
  • Dow: closed down ~0.2% after Powell’s comments on December uncertainty.
  • Nasdaq: extended gains, closing with a record for the fourth straight session.
  • S&P 500: finished flat (04:34).
• Nvidia Milestone:
  • First company ever to reach $5 trillion in market value—stock closed at $207.16.
  • Driven by AI enthusiasm and large partnerships (04:34).
• Major Job Losses:
  • Paramount: ~2,000 layoffs to address redundancies amid strategic change.
  • General Motors: >3,300 layoffs in EV and battery units; ~1,500 expected to be rehired by mid-2026 (04:34-06:00).

3. Trump’s Asia Tour & U.S. Defense Demands

• Breakthrough with South Korea:
  • President Trump and President Lee Jae Myung near completion of a new trade pact after intense negotiations over South Korean investment in the U.S (06:00).
• Defense Spending Push:
  • Trump urges Asian allies—especially Japan and South Korea—to increase defense budgets, echoing his earlier NATO pressure campaign.
  • “There’s a very clear reason: one is the China of it all.” — Alex Ward (06:46)
• Asian Allies’ Dilemma:
  • Concerns more spending could signal U.S. intention to reduce its military role in the region, potentially creating more insecurity.
  • “It’s kind of like a damn if they do, damn if they don’t.” — Alex Ward (06:56)
• Threats in Asia:
  • Thousands of U.S. troops in Korea and Japan are potential targets if China escalates.
  • Renewed threats from China on Taiwan—China refuses to rule out forceful takeover (07:19-08:08).
• Reception to U.S. Demands:
  • Allies broadly receptive—concerns over China make defense spending politically palatable.
  • Trump’s approach echoes Biden’s, pointing to rare continuity in U.S. policy: “There’s remarkable continuity in the Biden to Trump policies.” — Alex Ward (08:44).

4. Corporate Earnings

• Quick Recap (09:44):
  • Meta: Record $51.2B in Q3 revenue (+26% YoY), but net income ($2.7B) lags expectations.
  • Google: 16% revenue growth in advertising and cloud.
  • Microsoft: $77.7B in revenue; Azure cloud unit up 40%.

5. Senate Proposal to Raise Deposit Insurance Limits

• Proposal Overview:
  • Senators want to increase FDIC insurance from $250,000 to up to $10 million for certain accounts (10:52).
• Motivation:
  • Driven by fallout from the 2023 regional banking crisis, when businesses pulled uninsured funds from troubled banks (11:19).
• Political Support:
  • Supported by an unusual coalition: Treasury Secretary Scott Besant and Sen. Elizabeth Warren.
    • Besant: Wants a level playing field for community and midsize banks.
    • Warren: Sees big banks as benefiting from an implicit "too big to fail" guarantee and wants them to help pay the cost (12:17).
• Big Banks’ Resistance:
  • Would pay more into insurance funds but not get the higher limit for their own accounts.
  • “They’re going to be paying for something that doesn’t potentially benefit them.” — Dylan Tokar (13:00)

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Notable Quotes & Memorable Moments

• On the rate path:
  “Policy is not on a preset course.” — Greg Ip (01:50)
• On internal Fed disagreement:
  “There’s strong disagreement about what to do in December.” — Greg Ip (02:20)
• On Asia’s defense conundrum:
  “It’s kind of like a damn if they do, damn if they don’t.” — Alex Ward (06:56)
• On policy continuity:
  “There’s remarkable continuity in the Biden to Trump policies.” — Alex Ward (08:44)
• On deposit insurance proposal:
  “They’re going to be paying for something that doesn’t potentially benefit them.” — Dylan Tokar (13:00)

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Timestamps for Important Segments

• Fed rate cut announcement & uncertainty: 00:46 – 04:23
• Markets and tech sector milestones/job cuts: 04:34 – 06:00
• Trump’s Asia trip & defense spending debate: 06:00 – 09:00
• Earnings roundup: 09:44 – 10:50
• Deposit insurance debate explained: 11:19 – 13:28

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This episode pairs timely financial analysis with global politics, providing listeners a concise synthesis of complex developments influencing markets, economic policy, and international relations.

Transcript

[Alex Osolov]

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[Alex Ward]

The issue that the Japanese and the South Korean sphere is, hey, if we spend more on our defense, does that mean the US Wants out of this region or at least a lesser role in this region? So it's a weird situation here where it's kind of like a damn if they do, damn if they don't.

[Alex Osolov]

And the streak of job losses continues with thousands more cuts announced. It's Wednesday, October 29th. I'm Alex Osolov for the Wall Street Journal. This is the PM edition of what's News and top headlines and business stories that move the world. As was widely expected, the Federal Reserve lowered interest rates by a quarter point at its second consecutive meeting today, extending an effort to prevent a recent slowdown in hiring from turning into something more serious. The latest cut will reduce the Fed's benchmark short term interest rate to a range of 3.75% to 4%, the lowest in three years and down from 5.4% that the Central bank maintained for much of last year. What happens from here, though, has gotten murkier. Here's Federal Reserve Chair Jerome Powell.

[Greg Ip]

In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion.

[Dylan Tokar]

Far from it.

[Greg Ip]

Policy is not on a preset course.

[Alex Osolov]

Greg IP is WSJ chief economics commentator and is here with me to discuss where the Fed's rate path goes from here. Greg, how did the voting for this meeting shake out? Were there any surprises?

[Greg Ip]

The voting wasn't a big shock. The majority voted, as expected, in favor of the quarter point rate cut. We had a dissent in favor of a bigger half point rate cut by Fed Governor Steve Myron that was expected. We had a dissent in favor of no cut by one of the Reserve bank presidents. This is relevant less for what it meant for this week's meeting than what it means for the next meeting. Fed Chair Powell said there's strong disagreement about what to do in December. And and I take that to mean that many people share both those views, that they should Keep cutting and they should stop cutting. And that deeply complicates where rates go from here.

[Alex Osolov]

Back in September, there was a narrow majority of officials who said that they did expect several more rate cuts through the year, including in December. But does that seem like that picture has changed?

[Greg Ip]

The following things have changed. There was support for that rate cut in September on the view that you had seen weaker labor market data and that the actual level of rates was still rather high. So today what has changed? Even though there's a blackout on official data, the unofficial data tell them that the labor market has not deteriorated further. There seems to be a lot of buoyancy out there around spending, around AI, around the stock market, and rates are another quarter point lower as of today. And so given the absence of urgency to ease further to help the economy and the fact that they're getting closer to the sweet spot for where rates should be, it's just a lot less of a compelling case to cut further to a lot of folks at the.

[Alex Osolov]

Fed as they're looking ahead for this next meeting. Hopefully there will be some government data by then. What are the kinds of things that they're going to be looking at to determine whether there is a need to cut rates further?

[Greg Ip]

As you said, the absence of the data makes life really hard. And I think everybody's hoping that the government shutdown will be over and we can start to fill in some of those blank spots. But in the meantime, we'll be getting a variety of non official data. You will still get some information on number of people claiming unemployment insurance from state offices. There will be a stream of announcements from corporations. One of the things on people's minds is that there seems to have been an uptick in layoff announcements. On the other side, there is price data, right? So we had a consumer price index reading for September. It seems less likely we'll get one for October. But we will continue to get anecdotal data about price increases. Just based on what Fed chairman said today and where things are likely to go, it seems unlikely you'll get a cut in December.

[Alex Osolov]

That was WSJ chief economics commentator Greg Imp. Thank you, Greg.

[Greg Ip]

Thanks for having me.

[Alex Osolov]

Major US Indexes were mixed today. The Dow turned lower, closing down about 0.2% after Powell sowed doubt about a further rate cut in December. But the Nasdaq hung onto its gains, adding over half a percent and notching its fourth straight record. The S&P 500 was flat. Meanwhile, Nvidia has become the first company to hit $5 trillion in market value, according to FactSet. The chip maker stock closed at $207.16, or a market cap of roughly $5.03 trillion. Shares have been boosted by exuberance for AI's potential and a recent flurry of deals and partnerships with some of the biggest companies in AI and corporate America. It's been a difficult week for some American workers, with a number of companies announcing thousands of job cuts. Today, two more companies join them. Paramount said it will lay off roughly 2,000 workers across the company. In a memo to employees, CEO David Ellison said that the layoffs were focused on addressing redundancies and to accommodate its shifting priorities. And General Motors said it was laying off more than 3,300 hourly workers at factories that make electric vehicles and EV batteries. Of Those, more than 1700 are being laid off indefinitely, with more than 1500 expected to be called back in mid-2026. President Trump is now in South Korea on the next leg of his Asia tour. Today he met with the country's president, Lee Jae Myung, and said that the two countries are close to completing a trade pact. It's a surprise breakthrough following months of contentious talks over $350 billion in investments surrounding Seoul has pledged to America. The two leaders didn't sign a formal agreement, but a trade pact, as agreed by both sides, could be released in the next two to three days. One of the things that's come up in discussions with South Korea as well as with other countries on Trump's Asia trip is the US Demand that nations spend more on defense. For more, I'm joined now by WSJ national security reporter Alex Ward, talking to us from South Korea. Alex, why is Trump asking Asian countries to increase their defense spending now?

[Alex Ward]

Because he was pretty successful with Europe getting NATO countries to do that. And now Trump is turning his attention to Asia. And there's a very clear reason. One is the China of it all. He would love for Japan and South Korea above all, but there are other countries here that he would love to see spend more on their defense so they could counter China. And then there's the issue that the Japanese and the South Koreans fear, which is, hey, if we spend more on our defense, does that mean the US Wants out of this region or at least a lesser role in this region? So it's a weird situation here where it's kind of like a damn if they do, damn if they don't.

[Alex Osolov]

What kinds of threats is Washington seeing emerge in Asia?

[Alex Ward]

There's kind of two main ones. There are thousands of American troops in this region, roughly 30,000 in South Korea. There's many more thousand in Japan. Say China really wanted to come after the United States. They know where these American troops are and they could target them easily. And then there's Taiwan. Today the Chinese government said that they would absolutely not rule out a military or at least a forceful takeover of Taiwan. And that is something that the United States has worried about long before Trump was president. If you are the US Government, you're thinking it would be better for us to have, let's say, force multipliers in the Japanese or the South Koreans to make Beijing think twice at least about moving on American troops to Taiwan.

[Alex Osolov]

And how's this message from President Trump.

[Alex Ward]

Going over relatively well. The Japanese, the South Koreans, the Filipinos, et cetera, are all for spending more on defense because the China of it all is threatening them. Why not spend more, especially if the United States is willing to sell its higher end weapons. And so it's all heading in the direction that Trump wants. One quick caveat. This is basically the Biden policy. Biden's argument was the United States should cooperate with China where we can and bolster up defenses and allies where else? So they're coming at it at different ways for sure. But there's remarkable continuity in the Biden to Trump policies.

[Alex Osolov]

That was WSJ national security reporter Alex Ward. Thanks, Alex.

[Alex Ward]

Yeah, thanks for having me.

[Alex Osolov]

Coming up, why a Senate proposal that would raise the limit for deposit insurance is a nightmare for big bangs. That's after the break.

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[Alex Osolov]

We're in the thick of earnings season with a number of companies reporting today. Here's a rundown of the latest results from some of the biggest names. Meta platforms reported record revenue in the third quarter. It brought in 50%, $51.2 billion in sales for the quarter. For a year over year growth rate of 26% ahead of analyst expectations. But its $2.7 billion in net income fell far short of analysts expectations. Google's parent company reported a 16% surge in third quarter revenue, with growth in its digital advertising and cloud computing units helping to finance robust artificial intelligence spending. And Microsoft reported revenue of $77.7 billion for its first fiscal quarter, exceeding Wall street expectations. The company's closely watched Azure cloud business grew by about 40%, topping expectations. There's a debate going on over deposit insurance, the federal backstop intended to protect bank customers deposits up to a certain amount. Right now that limit is $250,000. But a group of senators has proposed a bill that would raise it to as much as $10 million for certain accounts. An idea that has gotten support from an unlikely coalition of leaders. But for the nation's biggest banks, it's a nightmare scenario. Dylan Tokar covers regulatory policy for the Journal and is here to tell us more. Dylan, why do mid sized banks want to increase the limit?

[Dylan Tokar]

This whole conversation stretches back to the regional banking crisis in 2023. Several mid sized banks had a lot of businesses that had these very large non interest bearing transaction accounts to cover payroll and operating expenses. And many of those accounts are over 250,000. When questions arose about Silicon Valley banks stability, the businesses rush to withdraw the money from those accounts before a potential collapse. And so arose this debate around coverage limit we are seeing resurface now.

[Alex Osolov]

So two of the people who are engaged in this debate and pushing for raising this limit are Treasury Secretary Scott Besant and Democratic Senator Elizabeth Warren. Pretty surprising combination of people there. Why are they each pushing for this?

[Dylan Tokar]

Treasury Secretary Besant is perhaps one of the more interesting unexpected supporters of this. He has been on the record saying that he is very interested in community banks and the diverse slate of banks in this country and making sure that there's a level playing field for them here vis a vis the very big mega banks. On the other hand, Elizabeth Warren, who I think views this proposal as a way to make the largest banks pay for some of the implicit too big to fail backstop they already potentially have.

[Alex Osolov]

Why don't these big banks want this?

[Dylan Tokar]

The cost? The big banks pay a lot more into the fund. The second reason right now, at least with the proposal, they are actually carved out from receiving this new benefit. They will still have the $250,000 deposit insurance limit on all accounts, but they won't have the $10 million on business transaction accounts. So they're going to be paying for something that doesn't potentially benefit them.

[Alex Osolov]

That was WSJ reporter Dylan Tokar. Thank you Dylan.

[Dylan Tokar]

Thank you.

[Alex Osolov]

And that's what's news for this Wednesday afternoon. Today's show is produced by Pierre Bienname and Zoe Culkin. We're with supervising producer Jana Herron. I'm Alex Osolov for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.

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[Greg Ip]

Com.