Core Viewpoint - The Federal Reserve's recent decision to cut interest rates by 25 basis points to a range of 3.75%-4.0% was interpreted as a "hawkish cut," indicating internal divisions regarding future monetary policy direction [2][10][29]. Group 1: October FOMC Meeting Insights - The FOMC cut rates by 25 basis points, aligning with market expectations, but there were dissenting votes advocating for a larger cut or no cut at all [20]. - The economic outlook has improved marginally, with GDP growth expectations for Q3 revised upward to an annualized rate of 3.9%, compared to previous quarters [21]. - The statement on employment and inflation remained unchanged, but the overall economic activity is now described as expanding at a moderate pace [21]. Group 2: Market Reactions and Future Expectations - Following the meeting, the probability of a December rate cut dropped significantly from 92.3% to 68.9%, leading to increased volatility in the stock market and a rebound in the dollar index and Treasury yields [33]. - Despite the hawkish tone, there is still a strong likelihood of a rate cut in December, driven by a cooling labor market and manageable inflation risks [6][14]. Group 3: Economic Indicators and Employment Trends - The labor market is showing signs of gradual cooling, with private employment figures indicating a decline in job creation [6][14]. - Inflation, particularly core PCE, is currently at 2.8%, with expectations that it may peak around 3% in the fourth quarter [14][32]. Group 4: Federal Reserve's Policy Adjustments - The Fed plans to end its balance sheet reduction by December, transitioning to a strategy of reinvesting maturing securities while maintaining a stable portfolio structure [4][22]. - The decision to halt balance sheet reduction is influenced by rising liquidity pressures in the money market and the need to align reserve levels with economic conditions [23].