In the shadow of the government shutdown, the Federal Reserve forged ahead with another interest rate cut on Wednesday. Fed Chair Jerome Powell announced the second quarter-point cut in as many months, though the committee was forced to make the decision in the midst of a data blackout.
The government did not release its monthly jobs report in October due to the shutdown, though private labor market data continues to show slowing gains. A delayed monthly inflation report was released in late October, showing annual price rises of 3%. The Bureau of Labor Statistics only compiled this data because it was needed for Social Security cost-of-living adjustments. Beyond that, the government has halted all data releases until the shutdown is resolved.
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Despite the data blackout, economists widely expected the Fed’s rate cut, saying other economic indicators have remained consistent with the Fed’s planned rate cut path.
Wednesday’s rate-setting meeting was the first-ever Fed meeting without federal employment data. During the record-breaking shutdown from December 2018 to January 2019, the government continued to fund the Bureau of Labor Statistics, and analysts continued to release data.
Stocks opened higher Wednesday morning as they anticipated the rate cuts. Dow futures were up 0.2%, while S&P 500 futures gained 0.25%. The Dow also started the day on track to close above the 48,000 mark for the first time in history.
How many cuts has the Fed made this year?
On top of Wednesday’s cut, the Fed also cut its interest rate by a quarter point in September, bringing the overnight lending rate to 3.75%-4%.
This rate ripples to other lending industries. Mortgage rates have fallen to 6.19% from the 6.6% seen in June. However, rates are much higher than they were only a few years ago.
Why the Fed is cutting while inflation is rising
The Fed has said the slowing job market is becoming a big concern for officials.
“The labor market has actually softened pretty considerably,” Powell said. “The downside risks to employment appear to have risen.”
Unemployment and inflation are other concerns for the Fed. Employment, while low, sits at 4.3% as of September. Although inflation stayed elevated, its acceleration has stalled, suggesting that further interest rate hikes may not be necessary to control it.
Will the Fed cut rates again this year?
In September, the Fed signaled it would likely cut rates three times in 2025. However, economic uncertainty has prompted some officials to say they may not support a further rate cut during the next meeting in December.
During the press conference following the decision, Powell said the Fed had “strongly differing opinions” on another rate cut in December. However, they have yet to come to a decision.
“There were strongly differing views about how to proceed in December,” Powell said. “It is a fact that we don’t make [advanced] decisions, but I am saying something in addition here: That it is not to be seen as a foregone conclusion. In fact, far from it.”
Powell acknowledged the shutdown and said the uncertainty the shutdown brings could “be an argument in favor of caution about moving.” He also spoke on inflation and said he expected it to continue to increase as tariffs filter through the supply chain. He said Americans could see an increase until spring.
Christopher Waller, a member of the Fed’s governing board, said he supported this month’s rate cut, but any further cuts would depend on economic conditions at the time. During a speech on Oct. 16, Waller said figures show the economy is growing despite weak recent hiring data.
“Something’s gotta give,” Waller said. “Either economic growth softens to match a soft labor market, or the labor market rebounds to match stronger economic growth.”
