Fed Watch – 11/7/2025

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 thanks so much for joining us for this November 7 edition of ITR Economics Fed Watch. Not too much news this week, so we’re going to go back to something else that we didn’t get to talk about in the wake of last week’s Fed meeting, in the wake of that rate decision.

But first, I want to acknowledge that as of this Wednesday, the ongoing government shutdown officially became the longest in history. So we have been talking a lot about the impacts, there is a lot of other content available on ITReconomics.com and right here on our YouTube page about the impacts of that shutdown. But really, where we see this going is that the longer the shutdown goes on, the more we can see these impacts ramp up. Government spending is a major component of Gross Domestic Product. We all hear the stories of how individuals are affected, especially the one in the headlines recently is things like SNAP benefits. Keep in mind, these benefits in some cases are being, at least partially, backfilled by either private or state and local sources. That doesn’t mean that this isn’t a strain for those consumers. But in terms of the overall economic impact, we still see the retail sales forecast being supported more by the upper income consumers. They contribute a larger percentage of that total in typical times. And that’s really been a key theme to our consumer outlook going forward this business cycle.

Also this week, the Supreme Court is hearing arguments on Trump’s tariffs. So it will be some time before we get a decision. But this one is back in the news, as I’ve said before, the average case of tariffs, the time from tariff implementation to when we expect to see the full pricing impact, that full inflationary impact on final goods prices, it typically takes between 9 and 18 months. So I want to be clear, we are not yet nearly 18 months out from the start of the Trump tariffs, but the way these tariffs have been rolled out with a tariff being announced and then a pause, a renegotiation, a court case, a different court blocking some court decision. This has been two steps forward, one step back. So it would absolutely not be surprising to see that timeline a little bit more extended. I hear commonly when I’m out there in the marketplace that we have already seen tariffs be priced in, and that is true for certain markets, right? That’s true for things like commodities importers. That’s true for something like the bond market that takes a view of these things. We might be priced into those overall asset prices, but being priced in is not the same thing as having that full inflationary impact in the data.

So still waiting for more to come through on that. We’ll be following the Supreme Court case as it proceeds. But back to our main topic today. Because last week with the Fed decision, we did not just get a 25 basis point rate cut, we also got a little bit more nuanced announcement about the end of quantitative tightening. So quite simply, what is quantitative tightening or quantitative easing on the other side? This is a program, it’s essentially a different lever that the Fed can pull, not just setting interest rates, but purchasing securities, whether they’re government securities, corporate bonds, any other number of assets, but it’s meant to add a little bit of juice into these economic fundamentals. So the end of quantitative tightening, what that means is, by next year, we’ll start to see the Fed make those major asset purchases again. Now, Chair Powell talked about this. He said that we are going to see the Fed, he said, quote, at a certain point, you’ll want reserves to start gradually growing to keep up with the size of the banking system and the size of the economy. So this isn’t like in, say, 2008 or in 2020, when we have some shock, some recession event or some black swan event hitting our economy, that the Fed thinks they need to step in and add stability. This is not meant to be a stabilizing force. This is just meant to be something the Fed will do on an ongoing basis, essentially to grow their balance sheet with the same pace or at least a similar direction to the overall economy and to the banking system.

So we will be watching this trend. Again, it goes in concert with the easing that we have been seeing. Does that mean we can see more rate cuts, fewer rate cuts going forward? We’ll be unpacking that on future episodes of ITR Economics Fed Watch. Stay with us.