Fed Lowers Interest Rates but Powell Sows Doubt About December Cut

This advertisement is brought to you by TALIS. TALIS' industry-leading platforms protect critical applications, data and identities, anywhere at scale with the highest ROI. That's why the most trusted companies in the world rely on TALIS to protect what matters most. Learn more at taliscroup.com/cyber. The Fed cuts interest rates by a quarter point, but officials are divided on how much further to go. Plus, how U.S. allies in Asia are responding to President Trump's demand that they spend more on defense. The issue that the Japanese and the South Koreans fear is, hey, if we spend more on our defense, does that mean the U.S. 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. And the streak of job losses continues with thousands more cuts announced. It's Wednesday, October 29th. I'm Alex O'Sullivan for the Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today. 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 percent to 4 percent, the lowest in three years, and down from 5.4 percent 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. 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, far from it. Policy is not on a preset course. 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? 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 I take that to mean that many people share both those views that they should keep cutting and they should stop cutting. That deeply complicates where rates go from here. 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? 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. Today, what has changed? Even though there's blackout on official data, the unofficial data tells 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. Rates are another quarter point lower as of today. 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 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? As you said, the absence of the data makes life really hard. I think everybody's hoping that the government shutdown will be over and we can start to feel 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 a 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 and layoff announcements. On the other side, there is the price data. We had a consumer price index reading for September. It seems less like 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. That was WSJ Chief Economics Commentator, Greg Ip. Thank you, Greg. Thanks for having me. Major U.S. 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 on to 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 chipmaker's 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 joined 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 1,700 are being laid off indefinitely, with more than 1,500 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 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 U.S. 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? 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 U.S. 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, a damn if they don't. What kinds of threats is Washington seeing emerge in Asia? 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 U.S. 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. And how's this message from President Trump going over? Relatively well. The Japanese, the South Koreans, the Filipinos, etc., 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. That was WSJ national security reporter, Alex Ward. Thanks, Alex. Yeah, thanks for having me. Coming up, why a Senate proposal that would raise the limit for deposit insurance is a nightmare for big banks. That's after the break. DC politicians want to enact harmful credit card mandates that could take away your cash back and rewards points, perks that stretch your budget and make life a little easier. Losing these benefits means less money for your family's everyday essentials like gas and groceries. The perks you rely on could disappear, leaving you with higher costs and fewer options. Tell Congress to guard your card and oppose the Durban Marshall credit card mandates paid for by Electronic Payments Coalition. 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 $51.2 billion in sales for the quarter for a year-over-year growth rate of 26 percent ahead of analyst expectations. But its $2.7 billion in net income fell far short of analyst expectations. Google's parent company reported a 16 percent 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 companies closely watched Azure cloud business grew by about 40 percent, 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? 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. Many of those accounts are over $250,000. When questions arose about Silicon Valley banks' stability, the businesses rushed to withdraw money from those accounts before a potential collapse. And so arose this debate around coverage limit. We are seeing resurface now. 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? 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-à-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. Why don't these big banks want this? 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 for 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. They're going to be paying for something that doesn't potentially benefit them. That was WSJ Reporter Dylan Tokar. Thank you, Dylan. Thank you. And that's what's news for this Wednesday afternoon. Today's show is produced by Pierre Bienemé and Zoe Colkin with supervising producer Jana Herron. I'm Alex O'Sullivan for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening. 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