Fed Watch – 10/31/2025
Fed Cuts Rates Again as FOMC Debate Deepens
This week on Fed Watch, ITR Economist and Speaker Lauren Saidel-Baker breaks down the Federal Reserve’s second consecutive 25-basis-point rate cut and the growing division within the FOMC over future monetary policy. Discover how changes in employment trends, net migration, and population growth could influence the Fed’s next move — and what that means for business strategy and borrowing costs in the months ahead.
Key Episode Takeaways
- 00:00 – Fed meeting overview and rate cut highlights
- 00:38 – Why small rate cuts may not affect growth
- 01:30 – FOMC split: larger cut vs. no change
- 02:25 – Economic data delays and the government shutdown
- 03:10 – Labor market trends and Dallas Fed research
- 04:12 – Break-even employment and migration effects
- 05:30 – What this means for the U.S. economic outlook
The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.
Hi, I’m Lauren Saidel-Baker, and thank you so much for joining me for this October 31st edition of Fed Watch.
Been a big week. We had our Fed meeting. We got our 25 basis point rate cut. So that brings us to two consecutive cuts of 25 basis points each. The real question though, isn’t these 25 basis points or even these 50 basis points specifically?
Because as we talked about a few weeks ago, a lot of our bond markets, our consumer credit interest rates, those are not moving currently in a one-to-one ratio with cuts to the federal funds rate. So at the end of the day, this 25, 50 basis points, this is not moving the needle on overall economic growth or certainly on how the consumer feels and how they’re going to be responding to these pressures.
What that means is that we have to pay more attention not to what happened this week, which was very much expected and very well signaled, but really to what that means overall. Where do we go from here?
So diving a little bit beneath the surface within the members of the FOMC. There were two descents again, this meeting, but they went in opposite directions. On the one hand, we had Myron yet again calling for a larger cut to rates, but on the other hand, we had a new voice saying that there should be no change to the target rate.
So that’s starting to reveal what we’ve been talking about in recent months, which is that increasing turmoil beneath the surface, the disagreement that members of the Fed are having over this future path of rates going forward.
If we want to do a one-to-one comparison, you’ll see this online sometimes, they’ll take the FOMC statement and compare it to the statement of the prior meeting. Quick aside, there was, I think, a really funny change.
They changed their saying of recent indicators suggesting, well, they changed that to say, available indicators suggest. So that’s a quick acknowledgement that we don’t have a lot of the data that the Fed typically relies on to make these changes and to make their choices.
We, in the midst of this government shutdown, are still either waiting for data to be released or having it be delayed, or we’re having this data just not posted while the government is still shut down.
So if we do in fact get some movement, it seems like there might be early signals that agreements are being made that the government will be back up and running soon, a lot of that data coming in, which could take some time, but it’s going to reveal a bit more of the path going forward.
Because the two items, as we have been talking about, are on the one hand inflation, which you know ITR is concerned that inflationary pressures are building, but on the other hand, employment. And that’s where a lot of this messaging has been.
The reason for the rate cuts is that the Fed does not want to see more deterioration in the labor market. So to that side, I actually wanted to call your attention to a very recent piece that just came out.
This was from the Federal Reserve Bank of Dallas. They, the title of this piece is Break Even Employment Declined After Immigration Changes. That is a nerdy way to say, based on this one researcher’s estimate, the labor market, the way we consider it, the numbers that we expect for job gains might not actually be the case given recent immigration changes.
Again, this is something we’ve been wrestling with a lot here at ITR Economics, is the labor market imbalance given that this year we do expect to see negative net migration. And so this one researcher came to the conclusion that break even employment actually has, the requirement for new monthly break even jobs created has actually declined very significantly due to changes to net migration in the US.
His estimate is from a peak of approximately 250,000 jobs in 2023 to just 30,000 jobs in mid 2025. So is this the change? And will this more importantly percolate throughout Fed thinking? It turns out that the population growth, it’s actually the biggest contributor to break even payrolls, more so than even labor force participation.
So this is a new way to look at it. This is a new expectation of where jobs numbers need to be to assume our labor market is in balance. I’ll remind you that the number I’m focused on primarily, it’s not that monthly jobs report, which while we aren’t even getting at the moment, but it’s that ratio between unemployed workers and the jobs available for them.
So the post to job listings. Right now that’s hovering right in the ballpark of one to one. It is materially looser in the labor market than that two to one, two jobs for every one worker ratio that we saw back a couple of years ago.
But overall, I think there’s a lot more to unpack with how we view the labor market and more importantly, how the federal reserve views this balance. So we’re gonna keep doing that. Until then, enjoy this 25 basis point boost, but we’re watching closely.
How does the labor market contribute to future Fed decisions in the tail end of this year? We’ll be back next week with more on this. Until then, I’m Lauren Saidel-Baker. Thank you so much for joining me for Fed Watch.
