As part of our initiative to bring timely market information to California public agencies, CalTRUST Chief Executive Officer Laura Labanieh Kitson had a brief Q&A with State Street Investment Management’s Vice President, Portfolio Strategist Will Goldthwait to reflect on this week’s Federal Reserve meeting:
Laura: So, the Fed cut rates by 25 basis points this month… What gives?
Will: Chair Powell says inflation is still sticky, but the labor market looks wobbly, so they trimmed rates to cushion the economy like a parent putting bubble wrap on a toddler. The government shutdown means they’re flying blind on official data, so this cut is basically the Fed saying, better safe than sorry or we’re not panicking, but we’re definitely sweating a little.
Laura: Is another rate cut in December guaranteed?
Will: Nope—Powell practically laughed at the idea (well, Fed-laughed, which means he said “not a foregone conclusion” in a very serious tone). The Committee is split like a family arguing over Thanksgiving dinner, and Powell’s “driving in the fog” analogy suggests they’re slowing down before hitting a policy pothole. If private data shows labor strength or inflation surprises, they’ll slam the brakes on cuts. Translation: December is a coin toss, and Powell isn’t telling you which side he likes.
Laura: What’s happening with Quantitative Tightening (QT)?
Will: QT is dead. Funeral scheduled for December 1 (that’s when they stop shrinking their balance sheet). The Fed’s balance sheet (SOMA) is $2.2 trillion lighter, now at $6.1trln, and now they halt the paydowns in US Treasuries and will start reinvesting their MBS paydowns back into US T-Bills. Powell says this was all part of the plan, which is adorable because markets were starting to sweat over higher repo rates, more funding pressures and when QT would end. There was always the question: what is the “lowest level of reserves”. As a reminder the Fed would like “ample” reserves and we had been in an “abundant” reserves environment. I guess we now know: ~$3trln.
Laura: How does The Chairman view inflation right now?
Will: Powell basically said, “Inflation looks fine if you ignore tariffs,” which is like saying, “My diet is great if you ignore the donuts.” Goods prices are up thanks to tariffs, housing services (rent) are down, and services ex-housing are flat. Strip out the tariff drama, and core PCE is around 2.3%–2.4%, which Powell calls “pretty good.” Of course, consumers don’t care about tariff-adjusted math—they just see higher prices and wonder why Powell isn’t fixing their grocery bill.
Laura: What’s the state of the labor market according to The FOMC?
Will: It’s complicated. On the supply side: immigration is down and labor force participation is down; both shrinking labor supply. On the demand side companies are laying people off and not hiring as many as they had. But right now, these two things are offsetting. The unemployment rate is still low, initial claims have not ticked higher and payroll gains are steady (although lower). The aggregate data says, we’re fine… probably.
Laura: How did markets react to Powell’s comments?
Will: Markets threw a mini tantrum. Traders were betting on a December cut, but Powell’s “not a foregone conclusion” line sent bond yields up and stocks down faster than you can say “dot plot.” It was a reminder that monetary policy isn’t a straight line—it’s a group project with 19 people (members of the FOMC) who can’t agree on lunch. So, if you were hoping for clarity, The Chairman just handed you a fog machine.
Laura: What’s this about AI and data centers?
Will: When asked about AI Powell mentioned that AI is fueling a data center boom, which is great for tech bros and electricity bills and not impacted by policy interest rates, in other words this cut doesn’t fuel the AI build out. He noted that this boom is very different from the 1990’s internet boom. The companies today actually have earnings!
Source: Federal Reserve, Bloomberg, as of October 29, 2025