FOMC Analysis: Fed Delivers Second Straight Rate Cut, Pauses Balance Sheet Runoff

Amid a federal government shutdown that has halted the flow of key economic data, the Federal Reserve cut interest rates by 25 basis points to a target range of 3.75%–4.00% on Wednesday—its second consecutive reduction following September’s initial move. The decision underscored the Fed’s delicate balancing act between supporting a softening economy and managing persistent inflation pressures, while offering relief to debt and real estate markets anticipating a more sustained easing cycle. 

“Even with last week’s inflation figures, today’s rate cut sends a reassuring signal that the tightening cycle is abating,” Josh Winefsky, partner in the real estate practice at HSF Kramer, told Connect Money. “For debt restructuring, bridge loans, and distressed deals, it’s a favorable outcome that should create breathing room, improve refinancing options, and lower carrying costs across the market.” 

Marion Jones, principal and executive managing director of U.S. Capital Markets with Avison Young, echoed that sentiment: “The October rate cut signals to investors a greater sense of conviction in the Fed’s direction and will help fuel decision-making that has been long postponed. Debt liquidity is already outperforming 2024 levels, and with this cut—and likely future cuts—equity investors are starting to respond to a new chapter in the real estate cycle.” 

Still, the FOMC remains split. Some policymakers are increasingly focused on signs of a softening labor market, arguing that additional easing is needed to protect employment. Others warn that inflation could remain stubbornly above the 2% target, urging caution against too much monetary relief too quickly. 

Two officials dissented for opposite reasons, highlighting the policy rift. Stephen I. Miran, who joined the Fed’s Board of Governors last month, supported a larger half-point cut, mirroring his September position. Meanwhile, Jeffrey R. Schmid, President of the Federal Reserve Bank of Kansas City, voted to hold rates steady at 4.00%–4.25%, emphasizing concerns about moving too aggressively amid uncertain data. 

In its policy statement, the Fed said the economy remains “expanding at a moderate pace” with unemployment still low, but it acknowledged that “downside risks to employment rose in recent months.” The dual messaging reflected both confidence in economic resilience and unease about potential labor market weakening. 

“Lower borrowing costs can help restart stalled deals, improve refinancing options, and make new acquisitions more attractive,” Jason Wolf, managing principal of WCRE CORFAC International, told Connect. “Still, the real catalyst will be consistency—one cut alone won’t materially shift fundamentals unless it marks the start of a more predictable easing cycle.” 

Beyond rate policy, the Fed also announced a major shift in balance sheet management. Beginning December 1, it will pause the reduction of its $6.6 trillion balance sheet, citing strains in short-term funding markets. However, the central bank will continue allowing its mortgage-backed securities to roll off, replacing them with short-term Treasury bills—a move designed to reduce mortgage exposure while maintaining overall balance sheet size. 

At the post-meeting press conference, Fed Chair Jay Powell said recent market strains over the past three weeks made clear that now was the right time to halt balance sheet runoff. “There is little to be gained from trying to shrink the balance sheet further,” Powell stated, suggesting the Fed has reached an appropriate level of reserves to support market stability. 

“A change in monetary policy is like the tide turning—broad, gradual, and far-reaching,” said Thomas Raymond, founding partner of Callan Family Office. “While a 25-basis-point cut alone doesn’t dictate our positioning, we’ve long believed policy was turning dovish. The pause in balance-sheet runoff reinforces that view, and we’ve been leaning into risk—maintaining full, even slightly overweight, equity exposure in anticipation of a longer-term easing cycle.” 

That sentiment was echoed across global markets. “Investment activity in the U.S. continues to exceed expectations, reflecting pent-up demand from real estate investors,” said Henry Chin, CBRE’s Global Head of Research. “We’re seeing meaningful growth across commercial real estate sectors—especially office and retail—driven by rate cuts and improving fundamentals. Today’s move will further bolster investment momentum across asset classes.”