The decision to reduce the benchmark interest rate to a range of 3.75% to 4% was made in response to slowing job growth, but uncertainty surrounding inflation and the lack of official data due to the ongoing government shutdown make the Fed’s next steps difficult to predict. With mixed signals from the economy, policymakers face increasing pressure to navigate the fine line between boosting employment and avoiding further inflationary pressures.
Disagreements Within the Fed on Future Rate Cuts
The Federal Reserve’s decision to cut rates was not without controversy. Two members of the Federal Open Market Committee (FOMC) dissented: Governor Stephen Miran called for a larger, half-point cut, while Kansas City Fed President Jeffrey Schmid argued that no cut was warranted.
Powell’s comments after the meeting emphasised the committee’s split views. He cautioned that a rate cut at the December meeting was “far from a foregone conclusion,” noting that a growing number of Fed officials preferred to wait before deciding on further reductions. According to Powell, the committee had “strongly differing views” on the economic outlook, with some members advocating for more caution before committing to another rate change.
This internal division reflects the broader uncertainty facing the Fed. On one hand, policymakers are concerned about a softening labour market, with job gains slowing and unemployment edging up. On the other hand, the persistent threat of inflation, driven in part by tariffs imposed by the Trump administration, remains a key issue. Powell noted that while inflation has been slightly elevated, the risk of it becoming more persistent has diminished, giving some policymakers confidence that future cuts may not be necessary in the immediate term.
The Impact of Data Delays and the Shutdown on Decision-Making
One of the most significant challenges faced by the Fed in its October decision-making was the absence of crucial economic data. The ongoing government shutdown has delayed key reports, including the vital jobs and inflation figures. Without these official statistics, the Fed is essentially “flying blind,” relying instead on private-sector data and regional reports from the 12 Federal Reserve districts.
This data vacuum has made it harder for policymakers to accurately assess the health of the labour market and the broader economy. For example, while some private data points to a continued slowdown in hiring, the official jobs report for September remains unavailable. This has led Powell to emphasise the uncertainty in predicting the next steps, noting that policymakers are “collecting every scrap of data we can find.”
The lack of official data could lead to more cautious decisions in December, as the Fed may be unwilling to make significant moves without a clearer understanding of the economic situation. As Powell remarked, “What do you do if you’re driving in the fog? You slow down.” This uncertainty also casts doubt on whether the Fed will maintain its previously anticipated path of additional rate cuts, particularly if key data continues to be delayed. The Fed’s latest interest rate cut is part of a broader effort to manage a fragile economy, but with inflation still above target and critical data missing, future rate moves remain shrouded in uncertainty.
