All eyes were on the Federal Reserve on Wednesday as the central bank lowered the benchmark interest rate by a quarter point. The decision was not unexpected; however, the bank did not offer any guidance on where it will head with its next decision in December.

Fed Slashes Rates - What is Next?

The nation's benchmark lending rate now sits between 3.75% and 4%, marking the lowest rate in three years. Two Fed members dissented from the majority decision. Fed Governor Stephen Miran was advocating for a larger cut of half a point, while Kansas City Fed President Jeffrey Schmid wanted to hold borrowing costs steady.

This was the first time since 2019 that the bank saw two opposing dissents. Economic experts believe that this unrest is a byproduct of the divisiveness of President Donald Trump's controversial trade and tariff policies.

Central bank officials noted that it was challenging to make the monetary policy decisions without the information provided by key federal economic data. This data, including jobs reports and inflation levels, was not available due to the ongoing government shutdown. The Fed may need to put future rate cuts or increases on hold until the data blackout has lifted. The October cut is the first time in the modern era that government officials have had to implement monetary policy without a full month of data.

Fed Chair Jerome Powell said that an additional rate cut at the December meeting “is not a forgone conclusion.” Powell addressed the media after Wednesday's meeting, detailing that there were strong, differing views among policymakers about next steps. Heading into Wednesday's announcement, most investors believed that another rate cut would follow in December.

Central bankers became more concerned last month when government economic data through August demonstrated that companies were adding new jobs at the slowest pace since 2010. More recently, major corporations such as Target and Amazon have announced thousands of layoffs.

Economists worry that a lengthy government shutdown may prevent future rate cuts, particularly if the Fed does not have access to current economic data. The persistent inflation concerns are also adding to the uncertainty across the economy as a whole.

Although there were no current data points from the government, the Fed was able to lean on some information from private companies to guide its decision. For example, data from payroll software provider ADP demonstrated that hiring picked up the pace in September, but it is still on the weak end. The data also illustrates that although there have been several headline-making layoffs over the last few weeks, some of these workers have received generous severance packages that may not immediately lead to an uptick in unemployment claims.

Powell warned that private data is not a substitute for official government figures. Future rate cuts could be in flux should this government data not become available soon.

How the Stock Market Reacted to the Rate Cuts

The U.S. stock market closed with mixed results on Wednesday following the cuts. While the news of the rate cut was cheered on by investors, Powell's hesitation about the possibility of another rate cut in December caused some jitters in the market.

The Dow finished the trading day down 74 points, for a loss of 0.16%. The S&P 500 closed the day on a flat note. The Nasdaq Composite was the winner of the day, gaining 0.55%. The gains pushed the Nasdaq to a new record high.

Although the Dow and the S&P hit intraday record highs early in the trading day, both indexes fell throughout the afternoon.

Looking closer at the bond market, treasury yields inched up in response to the Fed's interest rate policy. This change resulted in a 10-year yield climbing to 4.07%.

Investors will continue to pay attention to the chance of economic data being available before the December Fed meeting. How the government shutdown unfolds in the weeks ahead will be a major driver of what the Fed decides to do next.

Did you find this content useful? Feel free to bookmark or to post to your timeline for reference later.