The Federal Reserve cut its benchmark interest rate by 25 basis points to 3.75-4.00% amid signs of a slowdown in the labor market and continued pressure on consumer prices.
The rate cut announced Wednesday is the second rate cut by the U.S. central bank this year.
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“Job growth has slowed this year and the unemployment rate rose slightly, but remained low through August. Recent indicators are consistent with these trends. Inflation has increased since the beginning of the year and remains slightly elevated,” the Fed said in a statement.
“Uncertainty about the economic outlook remains high.”
The amount of the reduction was almost as expected. Earlier Wednesday, CME FedWatch, which tracks the likelihood of a rate cut, said the probability of a rate cut was 97.8%.
After September’s rate cut, economists had largely expected two more cuts this year. Goldman Sachs, Citigroup, HSBC and Morgan Stanley are all predicting another 25 basis point rate cut by the end of the year, following Wednesday’s rate cut. Bank of America Global Research is the only major firm not expecting another 25 basis point rate cut in 2025.
Michael Klein, a professor of international economic affairs at the Fletcher School of Tufts University in Massachusetts, told Al Jazeera: “The Fed has a fine line between lowering rates to support the labor market and growth, and raising rates to control inflation. For now, the Fed is taking a cautious approach that leans a little bit toward growth concerns.”
Despite expectations, Federal Reserve Chairman Jerome Powell said further interest rate cuts are not necessarily inevitable.
“We haven’t made a decision yet for December,” Chairman Powell said at a press conference, referring to the Fed’s next interest rate setting meeting.
“We are well-positioned to respond to potential economic developments in a timely manner.”
Impact on government shutdown
The cuts come as economic data becomes increasingly scarce as the government shutdown continues, and as of Wednesday was in its 29th day, making it the second-longest government shutdown in U.S. history, behind the 35-day shutdown under first president Donald Trump in late 2018 and early 2019.
Due to the government shutdown, the Labor Department did not release September employment data as scheduled on October 3. The only major government economic indicator released this month was the Consumer Price Index (CPI), which tracks the cost of goods and services and is a key indicator of inflation. The CPI in September increased by 0.3% from the previous month, and the inflation rate was 3%.
The data was released because the Social Security Administration requested that cost-of-living adjustments be calculated for 2026. As a result, Social Security recipients will see a 2.8 percent increase in payments compared to 2025.
But the closure could have an even bigger impact on the central bank’s decision next month, as the Labor Department is currently unable to compile the data needed for its November report.
But private trackers are showing a slowdown while government data is limited.
“I don’t have a detailed picture of the situation, but if there are any significant or material changes in the economy, I think we will pick up on that,” Powell said.
Consumer confidence lags
Consumer confidence has fallen to a six-month low, according to a Conference Board report released Tuesday.
The data found that low-income earners (those making less than $75,000 a year) have less confidence in the economy as concerns loom over job shortages. This came just days after several large companies announced a flurry of layoffs.
On Wednesday, Paramount cut 2,000 employees. Amazon cut 14,000 corporate jobs Tuesday. Last week, retail giant Target cut 1,800 jobs. This comes as furloughs and layoffs weigh heavily on government workers. The U.S. government is the nation’s largest employer.
The Conference Board says people making more than $200,000 a year remain fairly confident, leading consumer spending to support the economy.
Pressures on both consumer spending and the labor market are primarily caused by tariffs that weigh heavily on consumers and businesses.
The US market is falling due to the interest rate cut. The S&P 500 and the Dow Jones Industrial Average are both down about 0.3%, and the Nasdaq, which is open as of 3pm in New York (7pm Japan time), is almost evenly matched.
