Easing Into Headwinds: Oct 29 Fed Cuts 25 bp While Beige Book Calls Growth “Flat”

On 2025-10-29, the Committee cut rates 25 bp and announced QT would end on December 1—while also saying inflation “has moved up and remains somewhat elevated.” If that sounds like easing into an inflation pickup, it is. The bigger twist: the same policy statement labeled growth “moderate,” even as the 2025-10-01 Beige Book described national activity as having “changed little,” with more Districts softening than growing. The narrative and the data are not on speaking terms.

- The FOMC’s “moderate” growth label conflicts with the Beige Book’s “little changed” activity and sector softness in manufacturing, agriculture, energy, and transportation.
- Policy eased despite inflation having “moved up”—a choice justified by risk management, not evidence cited in the statement.
- Key inflation drivers—tariffs and rising services costs (insurance, health care, technology)—were missing from the statement but prominent in the Beige Book.
- The statement flagged “downside risks to employment” without data; the Beige Book supplies it: muted labor demand, more layoffs/attrition, and greater use of temp/part-time.
- Split dissents—one for a 50 bp cut, one for no change—telegraph high internal uncertainty that the statement’s tone softens.

The Scorecard: Narrative vs. Evidence

Growth: The Label Is Doing Heavy Lifting
Calling growth “moderate” while the Beige Book reports broadly flat activity is not semantics—it’s policy context. The regional detail shows multiple goods-producing sectors under pressure, with manufacturing challenged by tariffs and transportation generally down. If growth is closer to “unchanged,” then easing is logical; if it’s “moderate,” easing into rising inflation is harder to square. The statement chose the rosier label.

Inflation: Rising—But Why Wasn’t That Explained?
Both documents agree inflation has picked up. Only the Beige Book explains the “why”: tariffs and rising services costs (insurance, health care, tech). That’s classic cost-push inflation—less sensitive to rate cuts and more persistent if supply-side frictions linger. The policy statement’s omission matters: without acknowledging cost drivers or uneven pass-through (some firms holding prices; others passing through fully), it presents inflation as a generic rise while deploying easing tools whose traction on cost shocks is limited.

Labor: The Risk Is Real, the Evidence Buried
The statement says employment downside risks have risen, but cites no specifics. The Beige Book supplies them: weaker hiring appetites, more layoffs/attrition, and a shift to temporary and part-time roles. That’s consistent with “job gains have slowed,” and it underwrites the cut. The communication gap is the problem—markets were asked to accept risk management on trust when the data existed in the Fed’s own outreach.

Policy Mechanics: Ending QT Without a Map
The decision to conclude balance sheet runoff on December 1 wasn’t tied to stress indicators or funding-market frictions in the statement. The Beige Book mentions only mixed conditions in rate-sensitive sectors and limited improvement in business lending. If the argument is that balance-sheet stability reduces downside risks while rate cuts cushion labor, that’s coherent—but it wasn’t articulated. Investors are left to infer the policy function.

Narrative Drift: From “Solid” to “Moderate” to “Flat”
- Waller (10/16): “Solid” growth with GDP context (2.8% last year; 3.8% Q2; ~1.6% first half), and inflation near target excluding tariffs.
- Statement (10/29): “Moderate” growth, inflation “moved up,” policy easing delivered.
- Beige Book (10/01): Activity “changed little.”
This drift reads like a pivot from data-dependent disinflation to risk-management easing, even as inflation’s cause shifted toward tariff and services-cost pressure. The split dissents reinforce the uncertainty.

• Rates: Cutting amid “elevated” inflation raises the odds of a stop-start easing cycle. Expect front-end volatility and a bias to bull steepening if labor weakens further, but bear flatteners if cost-push inflation sticks and the Fed blinks.

• Credit: Cost-push inflation with flat demand is bad for weak balance sheets. Favor higher-quality IG over marginal HY; watch sectors exposed to tariffs and transport costs.

• Equities: Services with pricing power (insurance, selected health care and enterprise tech) can defend margins; manufacturing and transport face squeeze from tariffs and diesel/jet fuel.

• Dollar/Commodities: A dovish tilt with stubborn inflation is USD-mixed: weaker on rate differentials, firmer if risk aversion climbs. Energy and ag volatility remains a tail risk if tariffs and supply frictions persist.

Looking Ahead

• What shows up in CPI/PCE: Watch whether tariff pass-through broadens and whether services inflation (insurance, medical, tech) keeps leading.

• Labor signals: Claims, JOLTS openings, and temp hiring. A turn in average weekly hours would confirm the Beige Book’s softening narrative.

• Policy communication: Does the Fed explicitly frame easing as risk management against labor downside while acknowledging cost-push inflation? Clarity would reduce volatility.

• Next Beige Book: District-level anecdotes on pricing power and discounting behavior—are firms still holding prices, or passing through more?

• Balance sheet: After Dec 1 QT conclusion, monitor money markets and bank funding spreads for unintended consequences.

Conclusion
The 2025-10-29 package cut rates 25 bp and ended QT on Dec 1—a decisive easing move delivered with an unconvincing story. Growth was called “moderate,” but the Fed’s own Beige Book said “little changed.” Inflation “moved up,” yet the key drivers—tariffs and services costs—were left out. The policy rationale leaned on “balance of risks,” while the evidence lived offstage. Investors shouldn’t trade the headline; they should trade the gaps.