Fed Poises to Lower Rates Wednesday, Signals December Cut/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ The Federal Reserve is widely expected to lower interest rates Wednesday, marking its second cut of the year. With job growth slowing and inflation stable, officials are balancing risks to employment and the broader economy. Another rate cut may follow in December if economic data supports the move.
Federal Reserve Interest Rate Outlook Quick Looks
- Fed likely to cut rates Wednesday to support a slowing labor market.
- Current federal funds rate of 4.1% expected to drop to 3.9%.
- Second rate cut in 2025, following Powell’s August policy shift.
- Mortgage rates already fell from 6.6% to 6.2% since Fed’s dovish turn.
- Data delays from the shutdown are making policymaking more uncertain.
- 750,000 federal workers are unpaid, threatening consumer spending.
- AI-driven growth continues to support GDP despite weaker hiring.
- Powell warns of a “softened” labor market and rising job risks.
- Fed policymakers remain split on further cuts beyond December.
- Markets expect a December cut with 90% probability, per CME FedWatch.
Deep Look
Federal Reserve Expected to Lower Rates Wednesday, May Signal Another Cut in December
WASHINGTON, D.C. — The Federal Reserve is expected to cut its key interest rate for the second time this year during its policy meeting Wednesday, as signs of a weakening labor market overshadow lingering concerns about inflation.
The widely anticipated move would lower the benchmark federal funds rate from 4.1% to 3.9%, a shift intended to make borrowing cheaper for households and businesses while preventing a deeper hiring slowdown.
This would mark another policy turn from the Fed, which spent much of the last three years tightening monetary policy to fight inflation. But with job growth nearly stalled and government data delayed due to a prolonged shutdown, policymakers are now operating in a data vacuum — and leaning more on caution than certainty.
Economy in a “Curious Balance”
Fed Chair Jerome Powell and his colleagues are trying to steer through conflicting economic signals. The job market has slowed dramatically, with just 29,000 jobs added monthly in the three months before the shutdown began on October 1. Meanwhile, the unemployment rate ticked up to 4.3%, its highest level in over a year.
At the same time, inflation remains elevated but has stopped accelerating. Last week’s delayed inflation report showed prices are stable enough that higher rates may no longer be needed to control them.
“The labor market has actually softened pretty considerably,” Powell said recently. “The downside risks to employment appear to have risen.”
The Fed chair added that the goal is to bring rates down to a level that neither stimulates nor restrains the economy, signaling a shift away from restrictive monetary policy.
Shutdown Obscures Economic Picture
Complicating the Fed’s decision is the government shutdown, now nearing the one-month mark. It has delayed key data on jobs and inflation, forcing policymakers to rely on older or incomplete figures.
About 750,000 federal workers have missed paychecks, which may begin to impact consumer spending, a vital component of U.S. economic growth. If the shutdown continues, the Fed could face greater pressure to act preemptively.
Kris Dawsey, chief economic researcher at D.E. Shaw, likened the situation to “driving in a whiteout,” saying the Fed is likely to stick with the path laid out in September: two rate cuts by year’s end, including one expected Wednesday and a possible second in December.
Tech Investment Supports Growth, But Not Jobs
Despite softening employment numbers, the U.S. economy has continued growing, bolstered by massive investments from technology firms building AI infrastructure. That growth, however, has not translated into widespread job creation.
Economist Stephen Stanley of Santander described the current environment as “a curious kind of balance,” where low layoffs are met with equally low hiring — a dynamic Powell has referred to as a “low-hire, low-fire” job market.
Some officials worry that this balance might tip. “There have been some worrisome data points in the last few months,” Stanley said. “Is that a weakening trend or are we just hitting an air pocket?”
Policy Division at the Fed
While most Fed watchers expect a cut this week, division remains among top officials over what should happen next.
At the Fed’s last meeting in September, the policymaking committee projected three rate cuts for the year. But internally, only nine out of 19 members supported more than two cuts — leaving the path forward uncertain.
Christopher Waller, a Fed governor and potential successor to Powell under the Trump administration, has signaled support for a quarter-point cut this month but emphasized the need for flexibility going forward.
“Either economic growth softens to match a soft labor market, or the labor market rebounds to match stronger economic growth,” Waller said in a recent speech. “So, something’s gotta give.”
He added that further rate reductions would depend on how the data — if and when it’s available — evolves in the coming weeks.
Markets Betting on December Cut
Despite internal debate at the Fed, financial markets are pricing in a greater than 90% chance of a December rate cut, according to CME’s FedWatch tool. So far, central bank officials have done little to push back against that expectation.
Jonathan Pingle, chief U.S. economist at UBS, said he will be listening closely to Powell’s Wednesday press conference for any repetition of concern about labor market weakness.
“If I hear that,” Pingle said, “I think they’re on track to lowering rates again in December.”
For now, all signs point to a rate cut Wednesday, with the real question being whether more easing will follow before the end of the year.
You must Register or Login to post a comment.