Federal Reserve Board Chairman Jerome Powell speaks during a press conference following a meeting of the Federal Open Market Committee on September 20, 2023 at the Federal Reserve in Washington, DC.
The next meeting of the Federal Reserve Policy Committee is scheduled for October 28-29.
The Fed is widely expected to reduce the Fed funds rate by a quarter percentage point to a range of 3.75% to 4%.
Fed officials are cutting rates because they are concerned about signs of weakness in the labor market and want to reduce borrowing costs to encourage hiring.
The Federal Reserve Policy Committee next meets on Oct. 28-29, with policymakers expected to cut the central bank’s key interest rate to reduce borrowing costs and prevent the unstable labor market from collapsing.
Investors expect the Federal Open Market Committee to cut the Fed funds rate by a quarter of a percentage point to a range of 3.75% to 4%, according to CME Group’s FedWatch tool, which forecasts rate changes based on Fed funds futures trading data. That would mark the lowest level for the Fed funds rate since December 2022. The Fed cut the key rate in September for the first time since December 2024.
Fed officials have said they are lowering interest rates to boost the economy and prevent a rise in unemployment. Job growth nearly ground to a halt this summer as tariffs have raised prices and squeezed consumers’ budgets.
If the Fed cuts its key rate as expected, interest costs on many types of short-term debt would fall. That includes credit cards, auto loans, and anything tied to bank primary rates, which are often set at a certain percentage above the Fed funds rate. On the other hand, yields on CDs and high-yield savings accounts would also decline, and inflation could rise even further.
The Fed is charged by Congress with a dual mandate to keep inflation low and employment high using the Fed funds rate, which is the interest rate that banks charge to borrow money from each other. The Fed funds rate affects borrowing costs on short-term loans like credit cards and auto loans, and indirectly influences long-term loans like 30-year mortgages.
When inflation is high, the Fed raises the rate to discourage lending and cool the economy, allowing supply and demand to rebalance. When the labor market weakens, the Fed lowers interest rates to encourage business and boost hiring.
Currently, the economy faces a rare situation in which inflation and the labor market are worsening at the same time, presenting a dilemma for the Fed over which problem to address first. Officials have been divided over which approach to take. Some have advocated for more rate cuts in the coming months, while others see inflation as a bigger threat and would like to keep rates higher for longer.
What is the job like? Recent reports indicate that the labor market is slowing. The country actually lost jobs in June, the first month of losses in more than four years, and added just 22,000 in August. Meanwhile, more people are filing for unemployment insurance, and more people are staying on unemployment longer.
The Bureau of Labor Statistics’ upcoming official monthly payrolls report, which covers September, will shed more light on the matter. That report was due Oct. 3, but has been delayed due to the government shutdown.
What is inflation like? The Fed’s preferred measure of inflation, “core” personal consumption expenditures (excluding food and energy) rose 2.9% over the 12 months in August, according to the Bureau of Economic Analysis. That figure leaves the Fed on course for a speed cut.
The Fed was scheduled to see one more major inflation report, on the September consumer price index, on Oct. 15 just before the meeting, but it is likely to be delayed due to the continued shutdown.
Inflation has accelerated in recent months, moving away from the Fed’s goal of an annual rate of 2%. Most Fed officials, with the notable exception of Trump appointee Stephen Miran, have said Trump’s tariffs are driving up consumer prices and are responsible for most of the rise in inflation. What else is happening? The government has been shut down since October 1, due to a standoff over health care policy, which has delayed all types of federal economic data. Statistical agencies will release reports after the government reopens, but if the standoff continues, a shutdown could leave the Fed Flying Blind.
A major question hanging over the Fed this year is whether Fed Governor Lisa Cook will remain on the 12-person voting committee. President Donald Trump has attempted to oust Cook, citing unproven allegations of mortgage fraud, and install his own nominee in his place as he pressures the Fed to sharply lower interest rates.
Cook sued to stop his firing and the case has gone all the way to the Supreme Court, which ordered that he be allowed to remain on the job at least until the court hears oral arguments in January. Cook had been appointed to a 14-year term as Fed leader by former President Joe Biden.
Cook’s removal could be a major milestone in Trump’s efforts to remake the Fed, which is an independent agency outside the direct control of the White House.
In recent speeches, Fed policymakers have highlighted the risks to its dual mandate, and several have advocated a cautious approach to rate cuts in the coming months.
“I’m a little cautious about loading up on too many rate cuts and just counting on inflation going away,” Austan Goolsbee, president of the Chicago Fed, said on CNBC Friday.
Jeff Schmid, president of the Kansas City Fed, said he would take a data-dependent approach, even though much of the usual data is unavailable during the shutdown.
“Of course, data dependency requires data,” he said this week at an event in Kansas City, Missouri. “While I am hopeful that government data that underpins the Fed’s decision-making will soon be available again, in the meantime, I will closely monitor alternative labor market and pricing data.”
Stephen Miran, Trump’s new appointee to the Fed Board of Governors, remained the Fed’s sole advocate for steep rate cuts. In an interview on Bloomberg TV last week, Miran said Trump’s economic policies would help reduce inflation, particularly his immigration crackdown, which Miran said would reduce demand for housing and subsequently lower rent inflation.
The Federal Open Market Committee (FOMC) is the body that sets the Fed funds rate for the Federal Reserve System, the Central Bank of the United States. It has eight regularly scheduled meetings each year, which are not open to the public. The Fed’s use of interest rates to influence the economy is called monetary policy.
The FOMC consists of 12 voting members: the seven board governors, the president of the Federal Reserve Bank of New York, and four other regional bank presidents who serve rotating one-year terms.
At each FOMC meeting, committee members discuss economic and financial conditions and decide whether to change the Fed funds rate. The FOMC issues a public statement on its decision at 2 p.m. on Wednesday when the meeting concludes. The Fed chair, currently Jerome Powell, usually hosts a press conference afterwards to explain the decision.
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(Tagstotranslate) Federal Reserve (T) Federal Open Market Committee (T) Fed funds rate (T) Interest rate
