The Federal Reserve is widely anticipated to reduce its benchmark interest rate by 25 basis points during its meeting on Wednesday. This would mark the second rate reduction in 2025, following a similar move in September. The decision comes as policymakers grapple with conflicting economic signals: persistent inflation and a weakening labor market. n nTypically, the central bank lowers borrowing costs to stimulate economic activity when employment trends deteriorate. Conversely, it raises rates to curb inflation during periods of rapid price growth. The current environment presents a complex balancing act. n nFed Chair Jerome Powell recently acknowledged the difficulty of navigating these crosscurrents, stating that there is no risk-free path forward as the institution tries to fulfill its dual mandate of stable prices and maximum employment. His remarks echoed those made at the previous rate cut. n nRecent data shows that consumer price inflation rose from 2.9% to 3% year-over-year in September, surpassing the Fed’s 2% target. The personal consumption expenditures (PCE) index, the central bank’s preferred inflation measure, also remained above target in August. However, the ongoing government shutdown has halted the release of newer PCE data, limiting the Fed’s ability to assess current conditions accurately. n nEconomists point to former President Donald Trump’s trade tariffs as a significant contributor to sustained price increases. According to Luke Tilley, chief economist at Wilmington Trust, these tariffs represent the largest tax hike since the late 1960s. n nOn the employment front, signs point to a deteriorating job market. While the unemployment rate stood at 4.3% in August—historically low—job seekers are now taking close to six months on average to find new work. Hiring levels have dropped to lows not seen since the aftermath of the 2008 financial crisis. The government shutdown has further hindered analysis by delaying the release of updated labor statistics. n nPrivate-sector alternatives, such as ADP’s employment report, suggest a sharp decline in private payrolls during August and September. However, this dataset covers only about 20% of the private workforce and excludes public-sector employment, making it an incomplete picture. BNP Paribas economists noted that the lack of official data complicates the Fed’s decision-making process. n nDespite labor market weakness, economic output remains strong. Gross domestic product (GDP) growth estimates have climbed to nearly 4%, driven largely by investments in artificial intelligence. Major stock indices continue to reach record highs, fueled by optimism around AI and expectations of further monetary easing. n nFederal Reserve Governor Christopher Waller, a Trump appointee and potential successor to Powell, emphasized the need for caution. He warned that either economic growth must slow to align with labor conditions, or the job market must strengthen to match GDP expansion. Even though Waller previously advocated for swift rate cuts, he now urges careful calibration to avoid policy errors with long-term consequences. n nSome analysts believe inflationary pressures may ease naturally as labor slack grows. Neil Dutta of Renaissance Macro suggests that weakening job growth could lead households to spend more conservatively, which in turn would reduce demand-driven price increases. “As labor market slack builds, inflation is likely to moderate,” Dutta observed. n nThe next policy decision is scheduled for December 10, leaving room for additional data to influence the Fed’s trajectory. n— news from NBC News
— News Original —nFederal Reserve poised to cut key interest rate for the second time this yearnInvestors are nearly certain that the Federal Reserve will announce a quarter-point cut to its benchmark interest rate Wednesday afternoon. n nWhat happens next is anyone’s guess. n nTypically, in times of a labor market slowdown the Fed lowers rates to spur economic activity. During times of rising inflation, the Fed often hikes rates to put a lid on rising prices. n nWith data simultaneously showing a weakening employment picture and a stubborn price growth, the Fed faces a dilemma as it determines where to set the rate that helps determine how much consumers and businesses pay to borrow money. n n“There is no risk-free path for policy as we navigate the tension between our employment and inflation goals,” Fed Chair Jerome Powell said earlier this month. He made similar remarks when the Fed cut rates for the first time this year, in September. n nLast week, the Bureau of Labor Statistics reported that the annual inflation rate for consumer prices had climbed from 2.9% to 3% in September — well above the Fed’s 2% target. The Fed’s view of the economy remains impaired by a lack of other data, which is paused due to the government shutdown. One of those measures, the personal consumption expenditures index (PCE), is the Fed’s preferred inflation gauge. The August PCE report, published prior to the shutdown, also showed a reading north of the 2% goal. n nMany economists attribute a significant portion of ongoing price pressures to President Donald Trump’s tariffs. n n“The tariffs are the biggest tax increase since the late 1960s,” said Luke Tilley, chief economist at Wilmington Trust financial group. n nMeanwhile, jobs data suggests the U.S. is experiencing one of the weakest labor markets of the 21st century. The unemployment rate, at 4.3% as of August, is relatively low on a historical basis. But it is taking those without jobs an average of nearly six months to land a new position, as hiring rates have collapsed to levels last seen in the years following the 2008 global financial crisis. The government shutdown, now on the verge of its fourth week, has complicated matters by preventing the Bureau of Labor Statistics from releasing more current economic data. n nWithout fresh numbers, “the Fed’s task is further complicated,” BNP Paribas economists wrote in a note on Tuesday. There are few private-sector sources of data and none can fully replicate the official government data. For instance, payroll processor ADP released its employment survey, which pointed to a significant decline in private employment in August and September. But that data only covers about 20% of the private labor force and does not count federal, state or local government employment. n nPart of the problem is that economic growth appears to be powering ahead thanks in great part to investments in artificial intelligence. Estimates of gross domestic product, the standard measure of economic growth, have soared to nearly 4%. Major stock market indexes, meanwhile, continue to set new records — also largely as a result of AI investments, fueling concerns about a bubble. The mere expectation that the Fed will further lower interest rates has also historically led to support for stock prices. n n“Something’s gotta give,” Fed governor Christopher Waller said on Oct. 16. Waller, a Trump nominee who is a finalist to succeed Powell as chair, has a permanent vote on the Fed’s rate-setting committee. “Either economic growth softens to match a soft labor market, or the labor market rebounds to match stronger economic growth,” he added. n nBut even Waller, who in the summer called on the Fed to lower rates as soon as possible, urged caution: “We need to move with care when adjusting the policy rate to ensure we don’t make a mistake that will be costly to correct.” n nOther analysts believe that the tension between elevated inflation and weakening labor data is easing — though for reasons that do not bode well for the broader economy. In a note published Monday, Neil Dutta, head of economics at Renaissance Macro research group, said that as jobs growth continues to falter, price pressures will, too, as households grow more cautious about spending. n n“Labor market slack continues to build and there is reason to expect inflation to cool as a result,” Dutta wrote. n nThe Fed is scheduled to make its next interest rate decision Dec. 10.