Crédit Mutuel AM: Seeking a balance between price stability and full employment

Crédit Mutuel AM: Seeking a balance between price stability and full employment

October 28, 2025

Fed
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By François Rimeu, Senior Strategist, Crédit Mutuel Asset Management

At its October 28-29 meeting, the Federal Reserve is expected to announce a second consecutive 25 basis point rate cut. This preventive measure aims to mitigate potential deterioration of the labor market.

Our expectations:

• Monetary policy: As anticipated, and given that the current policy remains moderately restrictive, the Federal Open Market Committee (FOMC) is likely to lower the federal funds rate by 25 basis points, bringing the target range to 3.75% - 4.00%.

• Communication: During his press conference, Jerome Powell is expected to reaffirm the Fed's commitment to its dual mandate: reducing the inflation back to 2% while supporting maximum employment. He will likely adopt a cautious tone, given the risk of persistent inflation. However, he may signal room for further rate cuts, in line with the indications of the September Summary of Economic Projections (SEP), provided that economic and financial conditions evolve as anticipated.

• Balance sheet reduction: As Jerome Powell noted in his October 14 speech, the Fed is expected to prepare markets for an imminent end to its quantitative tightening (QT) program. According to the September FOMC minutes, reserves, currently around $3 trillion, are expected to decline to approximately $2.8 trillion by the end of the first quarter of 2026. This level would still be considered “ample” (as opposed to “abundant” before), which would justify an early halt to the process.

In conclusion:

The Fed is likely to adopt a prudent and risk managed approach, adjusting its policy to a more neutral stance to sustain the economy.

Jerome Powell is expected to describe growth as solid and the labor market as broadly balanced, though facing moderate downside risks, while acknowledging that inflation remains elevated, partly due to tariffs. However, he will likely reiterate that monetary policy should ignore these tariff effects. Long term inflation expectations remain well anchored, and current conditions, particularly in the labor market, do not appear likely to turn these price increases into sustainable inflation.

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