Fed Cuts Interest Rates by 25 Basis as Shutdown Obscures Economic Data/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ The Federal Reserve cut its key interest rate by 25 basis points on Wednesday, lowering the range to 3.75%–4.00% in response to weakening job growth and persistent inflation. Limited government data due to the ongoing federal shutdown complicated the Fed’s decision-making process, prompting cautious policy shifts and a pause in balance sheet reduction. Two top Fed officials dissented, highlighting a rare split in opinion as inflation remains elevated and the labor market softens.
Quick Look:
- Rate Change: Cut by 25 basis points to 3.75%–4.00%
- Dissenters: Fed Governor Stephen Miran (wanted deeper cut), Kansas City Fed President Jeffrey Schmid (opposed any cut)
- Economic Context: Incomplete data due to federal shutdown; last jobs report was in August
- Balance Sheet Shift: Reinvestment of maturing mortgage-backed securities into Treasury bills starts December 1
- Inflation: Up from 2.3% in April to 2.7% in August (PCE Index)
- Job Market: Hiring has slowed; unemployment rate steady but may be understated
Fed Cuts Interest Rates by 25 Basis as Shutdown Obscures Economic Data
Deep Look
WASHINGTON — October 29, 2025 — The U.S. Federal Reserve cut its benchmark interest rate by 25 basis points on Wednesday, bringing it to a target range of 3.75% to 4.00%. This marks the second rate reduction of the year, aimed at supporting economic activity and the softening labor market amid elevated inflation and uncertainty caused by a prolonged government shutdown.
The decision, passed by an 10-2 vote among policymakers, came with notable dissent. Fed Governor Stephen Miran advocated for a deeper rate cut, while Kansas City Federal Reserve President Jeffrey Schmid argued against any reduction, citing ongoing inflation concerns.
Fed Responds to Uncertain Economic Signals
The Fed acknowledged the difficulty of navigating policy decisions without access to regular government data, which has been halted due to the federal shutdown. Key indicators like job growth, consumer spending, and inflation updates — typically essential for setting monetary policy — remain unavailable.
Fed officials instead relied on private-sector data and historical trends, stating that “available indicators suggest the economy continued to grow at a moderate pace,” even as employment signals showed clear signs of weakening.
“Downside risks to employment rose in recent months,” the Fed noted in its policy statement.
Despite the uncertainty, Fed Chair Jerome Powell emphasized the need to stay responsive. “We are watching the labor market closely, and we’re prepared to adjust policy further if economic conditions warrant,” he said ahead of a scheduled press conference.
Balance Sheet Adjustment and Market Liquidity
In addition to lowering rates, the Fed announced it will halt its balance sheet runoff beginning December 1. The central bank will stop shrinking its asset holdings and begin reinvesting proceeds from maturing mortgage-backed securities into Treasury bills, aiming to maintain liquidity in money markets, where some stress had emerged in recent weeks.
This move is seen as a precautionary measure to ensure stable financial conditions as the shutdown continues to cloud visibility across key sectors.
Inflation: Moderately Elevated but Easing
Inflation remains a challenge for the Fed. According to the most recent available data — from August — the Personal Consumption Expenditures (PCE) Price Index rose to 2.7%, up from 2.3% in April. While not as high as during the peak inflation periods of 2023 and 2024, the figure still exceeds the Fed’s 2% target.
In its September forecast, the Fed projected inflation would reach 3% by year’s end, though that estimate could be revised based on incoming data.
Interestingly, the Trump administration’s recent import tariffs have not spiked inflation as dramatically as expected, giving the Fed some flexibility in easing rates without significantly fueling price growth.
Divided Opinions, Rare Dissent
The dual dissents from Miran and Schmid represent only the third time since 1990 that the Federal Open Market Committee (FOMC) has experienced opposing views from both dovish and hawkish perspectives during the same meeting.
Miran argued for a more aggressive policy stance to counter labor market softness, while Schmid warned that a rate cut could prematurely stimulate demand and exacerbate inflation.
This divergence reflects the broader tension within the Fed: balancing support for employment with the imperative to keep inflation in check — all while flying partially blind due to missing government data.
Outlook: December Cut Still Possible
The Fed hinted at the possibility of another rate cut in December, but much will depend on whether the government reopens and data flows resume. Without full visibility into job creation, wage growth, and consumer behavior, policymakers face heightened uncertainty in charting the path forward.
For now, the 25-basis-point cut is intended as a stabilizing measure — an effort to boost hiring and spending without abandoning inflation vigilance.
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