The Paradox of October 29: When Rate Cuts Feel Like Admissions

In 1919, after nearly a century of gold-standard discipline, the Federal Reserve faced a choice. Markets were screaming for looser policy. The real economy was cooling. Yet prices were sticky. The Fed cut anyway—not because inflation had surrendered, but because it feared what would happen if it didn't. That cut marked the beginning of a decade of experimentation with easy money that ended, famously, in October 1929.

I'm not saying history rhymes. But history does whisper.

Tomorrow at 2:00 PM Eastern, the Federal Reserve will cut rates by 25 basis points. This is not news. Markets have priced it in with the confidence of a man who's watched the same movie seven times. The CME FedWatch tool shows a 100% probability. Not 99%. Not 99.5%. One hundred. The shutdown may have stripped away the September jobs data—700,000 federal workers going unpaid, economic output shrinking by 0.2% each week—but it didn't matter. The Fed had already decided.

What matters tomorrow is what Jerome Powell says after the cut.

The Labor Market Is a Lie We're Telling Ourselves

Here's what we know: unemployment hit 4.3% in August, a four-year high. July saw just 73,000 jobs added, less than two-thirds of economist expectations. The Bureau of Labor Statistics then revised down May and June by 258,000 jobs combined. In other words, we were hiring so slowly that when they finally looked back, we realized we'd been hiring even slower than we thought. That's not a soft landing. That's not even a landing. That's a stall.

Yet the stock market sits at all-time highs. The Magnificent Seven reported modest declines in "hiring, low firing" dynamics—language Powell himself used in his October 14 speech—yet equities soared. Verizon reports earnings tomorrow. Microsoft and Apple the day after. The market is expecting beat after beat, and if they miss, it's priced in. If they beat, investors will buy.

The Fed sees this contradiction and has made a choice: accommodate the strength that exists (consumer spending remains solid), even as weakness festers beneath the surface.

The Inflation Bluff

September's CPI hit 3%, the highest print of the year. That should terrify a central bank. Instead, Powell essentially shrugged in his October speech. Much of it came from tariffs, he said. Goods prices, not persistent inflation. The pass-through to consumers has been "pretty small," even though companies have stated their intention to pass along more costs. The Fed's preferred measure, core PCE, sits at 2.9%, just 0.9 points above their 2% target.

Here's the uncomfortable truth buried in these numbers: tariffs are doing what tight money did. They're raising prices without necessarily representing monetary inflation. A company can't pass a tariff cost forward unless demand is strong enough to absorb it. The Fed is responding to a real labor market weakness by acknowledging that tariffs—not its policy—are the inflation culprit. This is technically defensible. It is also politically convenient.

By cutting rates while inflation sits at 3%, the Fed is essentially betting that tariff-driven price pressures won't stick, and that the labor market deterioration justifies action. One dissent tomorrow will come from Stephen Miran, Trump's appointee, who wanted a 50-basis-point cut—a sign that the committee's internal tensions run deeper than the unified front suggests. Powell managed to prevent additional dissents in September. He may not hold the line forever.

The Message Nobody's Reading

Pay attention to Powell's language on balance-sheet runoff, or quantitative tightening. In his October speech, he signaled an end to QT "soon." That wasn't casual. The Fed has been shrinking its balance sheet at up to $95 billion per month, draining liquidity from markets. Now Powell is saying: reserves are "gradually tightening," and we need to avoid a repeat of 2019, when the funding squeeze nearly broke repo markets.

Translation: The Fed believes it overtightened, and it's going to reverse that mistake by refilling the system with liquidity alongside rate cuts.

This is the real story. Rate cuts are the headline. But pumping $95 billion per month back into the financial system is the actual policy shift. Equities love this. Bonds love this. And crypto absolutely loves this. When liquidity flows in, it doesn't ask where it goes—it just goes everywhere. Bitcoin's already tracking toward $120,000 as traders position for easier monetary conditions.

The Uncertainty Clause That Keeps Me Up

The Fed's statement will likely contain careful language about "data dependency" and "further assessment." But data dependency requires data. The September jobs report doesn't exist because of the shutdown. The government shutdown has also prevented the release of international trade data, housing reports, and regional economic surveys. The Fed is making epochal decisions on a one-eyed map.

Yet they'll cut anyway, because not cutting would send a message about confidence that they simply don't feel. The government shutdown is expected to end by the time of the meeting, but the psychological damage—750,000 workers, federal contractors, state and local spillover effects—is already done. The Fed sees weakness gathering and is moving before it crystallizes into something worse.

This is the paradox: cutting rates in a situation of wage-setting power and solid consumer spending, because the labor market is deteriorating and they fear what inaction looks like. It's accommodative policy disguised as insurance. It's a central bank admitting it doesn't know which way the dominoes will fall, so it's pushing money into the system preemptively.

The Dissent That Matters

One more thing worth noting: for the first time in its 112-year history, a president attempted to fire a Federal Reserve governor. That governor, Lisa Cook, voted for the September cut. She'll vote for this one too. Trump appointed two other Fed governors this cycle and has five candidates under consideration to replace Powell when his term ends in January 2028.

This doesn't change the policy tomorrow. But it changes what the policy means. A 25-basis-point cut made by a supermajority of Powell-era appointees, with one Trump-aligned dissent arguing for more cutting, suggests a Fed that is neither independent nor unified. It's a Fed responding to pressure by doing what everyone wants: easing into an election year while the labor market softens.

Powell will manage the message skillfully. He always does. He'll cite data. He'll invoke "maximum employment." He'll sound cautious. But underneath, he's making a calculated bet that easing now prevents a sharper deterioration later.

That's a bet we'll either have to live with or regret.

Either way, it starts tomorrow at 2:00 PM.

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The parallels to 1919 aren't perfect. The economy then had genuine deflation risks. Today we have wage-growth pressures and sticky service-sector inflation. But the impulse is the same: when faced with labor market uncertainty and policy doubt, the Fed cuts rates. History suggests this works better as insurance than as solution.