Fed's Latest Surprise Will Shock Economy | Danielle DiMartino Booth

Summary

Danielle DiMartino Booth discusses the October 2025 FOMC, where the Fed cut rates by 25 bp and signaled the end of QT, while Powell downplayed a December cut as foregone. She argues the real economy is weak, inflation is not problematic, and the Fed is too political and data-dependent amid the shutdown. On markets, she expects passive inflows to keep the stock rally alive, favors largest caps while flows persist, is cautious on gold froth, sees the dollar as resilient, and says the bond market may force the Fed's hand.

• Fed cut rates 25 bp; two dissents and December cut odds fell to 66%.
• Powell said December cut is not foregone; shutdown data fog may make Fed cautious.
• Fed will end Treasury runoff on Dec. 1 and reinvest MBS into Treasuries.
• Danielle says layoffs are rising and lower/middle-income consumers are squeezed.
• She sees inflation as not problematic and says rates should come down for small business.
• She expects passive inflows to support the stock market and mega-cap stocks.
• She is cautious on gold after its run and sees the dollar as resilient.
• She says the bond market may force the Fed to respond if it ignores the real economy.