PIMCO: Fed pushes back on market rate-cut bets, stays data-dependent amid shutdown
PIMCO said the Federal Reserve’s latest 25-basis-point rate cut to a 3.75%–4.00% target range was largely anticipated, but Chair Jerome Powell’s effort to rein in market expectations for another move in December was the real story of the October meeting. The bond manager said Powell’s message that further cuts are “not a foregone conclusion” successfully cooled overconfident rate-cut bets, with the market-implied probability of a December cut falling from more than 90% to about 70% following the press conference.
The Fed’s policy statement itself was little changed, reflecting a cautious approach amid a lack of economic data caused by the U.S. government shutdown. PIMCO noted Powell’s reliance on alternative indicators such as state-level jobless claims and private job openings, which have remained stable, suggesting the labor market may be more resilient than feared.
At the same time, the Fed announced plans to end its quantitative tightening program on 1 December, citing evidence that banking system reserves are becoming scarce. The central bank will now reinvest Treasury and mortgage-backed security runoffs to keep its balance sheet size steady and reduce its weighted average maturity by shifting toward short-term Treasury bills.
PIMCO said the September inflation data supported the latest cut, with underlying core CPI around 2.7% after adjusting for tariff effects, close to the Fed’s comfort zone. However, the firm added that Powell’s cautious tone reflects growing uncertainty over the next move, especially given limited visibility on labor conditions and potential tariff or fiscal shocks.
Looking ahead, PIMCO expects one more cut in December, though with less conviction than before. Beyond that, the firm said easing will likely slow in 2026, with policymakers potentially pausing again if growth stabilises and inflation continues to drift lower. Tariff impacts and upcoming fiscal stimulus may complicate the Fed’s view of the neutral rate, reinforcing a meeting-by-meeting approach.
“The Fed has bought itself time and optionality,” PIMCO wrote. “Powell’s message that a December cut isn’t guaranteed shows a central bank keen to stay flexible until data return.”
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PIMCO (Pacific Investment Management Company) is one of the world’s largest and most influential investment managers. Best known for its expertise in fixed income, the firm manages more than US$2 trillion in assets across bonds, equities, real assets, and alternative strategies. A subsidiary of Germany’s Allianz SE since 2000, PIMCO serves institutional and retail investors globally, with its macroeconomic research and active management approach giving it outsized influence on market sentiment and policy discussions worldwide.
