The Federal Reserve on Wednesday cut its benchmark interest rate by 0.25 percentage points, but Chair Jerome Powell hinted that the central bank might pause before further lowering borrowing costs.

The Fed cut lowers the federal funds rate — what banks charge each other for short-term loans — to between 3.75% and 4%, down from its prior range of 4% to 4.25%. The Fed reduced rates by the same amount in September, its first cut since December of 2024.

In a Wednesday afternoon press conference to discuss the decision, Federal Reserve Chair Jerome Powell said another rate cut at its next meeting, set for Dec. 10, "isn't a foregone conclusion." That may disappoint some borrowers and investors, given that the Fed last month had penciled in an additional rate cut for its final meeting of the year.

"There were strongly differing views on how to proceed in December" during the central bank's meeting today, Powell said. Those conflicting views mean "we haven't made a decision about December. I'm saying something in addition here — that it's not to be seen as a foregone conclusion. In fact, far from it."

He added, "We've cut 50 more basis points in the last two meetings, and there's a sense from some, 'Let's pause here,' and a sense from others, 'Let's go ahead.'"

Stocks erased modest gains after Powell's comments, with the S&P 500 slipping 0.2% in afternoon trading and the Dow Jones Industrial Average dipping 0.4%. 

The central bank's move to ease monetary policy is aimed at shoring up economic growth by lowering borrowing costs, spurring consumer spending and investment by businesses. Although the ongoing U.S. government shutdown has delayed release of the Labor Department's September jobs report, other indicators point to a continued slowdown in hiring. The ADP National Employment Report, for instance, showed private-sector payrolls shrinking by 32,000 last month.

In its policy statement on Wednesday, the Fed said "downside risks to employment rose in recent months."

The Federal Reserve's so-called dual mandate requires monetary policymakers to keep both inflation and unemployment low, with Fed Chair Jerome Powell noting last month that risks to the labor market are growing. 

While Powell said the Fed is watching layoff announcements from large businesses such as Amazon, he added that the weakness in the job market does not appear to be accelerating. His comments indicate that another back-to-back rate cut this year isn't a certainty, financial experts said. 

"The knee-jerk reaction of the markets to the Fed meeting (and press conference) was to sell stocks and bonds, because Chairman Powell said that an additional rate cut in December wasn't a sure thing," Chris Zaccarelli, chief investment officer for Northlight Asset Management, said in an email. Investors "were negatively surprised that future cuts might be taken off the table."

The Federal Open Market Committee, or FOMC, the panel that sets the Fed's monetary policy, isn't scheduled to meet on interest rates in November. 

Data blackout

The near-total blackout on government economic data during the shutdown may complicate the Fed's decision-making, experts said. Typically, Fed officials are able to draw on a host of official reports, ranging from measures of employment growth to inflation markers, as they seek to determine the best path for policy. 

"While today's rate cut and the general direction of future policy remain relatively clear, guidance on the committee's perspective on economic conditions is more necessary than ever," Bankrate financial analyst Stephen Kates said in an email. "A prolonged government shutdown and ongoing tariff negotiations continue to introduce significant uncertainty into the immediate monetary policy outlook."

Powell noted that the lack of official economic data may complicate the Fed's December decision, given that the central bank relies on such information to assess the economy. 

"What do you do when you are driving in the fog? You slow down," Powell said.

On Wednesday, 10 of the 12 FOMC members voted in favor of the quarter-point cut, with two members objecting. Fed Governor Stephen Miran dissented, preferring a 0.50 percentage point cut, as he did at the September meeting. Kansas City Fed President Jeffry Schmid also dissented, saying he preferred no rate change.

Inflation battle

While the Fed is now focused on weakness in the labor market, its battle against inflation isn't over. The Fed cranked rates higher after consumer prices soared during the pandemic, with inflation hitting a 40-year high of 9.1% in June 2022. 

Because higher interest rates make it more expensive to borrow, businesses and consumers typically react by paring spending, which dampens demand throughout the economy and cools inflation. Since mid-2022, inflation has receded to an annual rate of 3% as of September, although that remains higher than the Fed's target of a 2% annual pace. 

While the Trump administration's wide-ranging tariffs are starting to trickle through to consumer prices, the impact has been more muted than economists had predicted earlier this year. Some businesses are eating some of the tariff costs, while others stocked up on imports earlier in the year to get ahead of the import duties. 

"Though inflation is still higher than comfortable, the jobs market is holding on to signs of weakness, and their desire to stimulate the economy further is likely to continue outweighing inflation concerns," said Steve Rick, chief economist at financial services company TruStage.