WASHINGTON (AP) — The U.S. Federal Reserve is almost certain to cut its key interest rate on Wednesday, potentially signaling that it expects to do so. Additional cuts in December This is because the central bank aims to strengthen employment.
Wednesday’s cuts are the second this year and could benefit consumers by lowering borrowing costs for mortgages and auto loans. Since Federal Reserve Chairman Jerome Powell strongly signaled in late August that a rate cut by the end of this year was likely, the average 30-year mortgage rate has fell The rate will rise from 6.6% to approximately 6.2%, boosting the sluggish housing market.
Still, the Fed is navigating an unusual period for the U.S. economy, making it harder than usual to predict what will happen next. For employment almost at a standstillstill Inflation remains highAnd the economy’s near-solid growth relies heavily on large-scale investments by major technology companies. artificial intelligence infrastructure.
Central banks assess these trends without much of the government data they use to assess the health of the economy. The September employment report was postponed due to the government shutdown. The White House released October inflation figures last week. It may not even compile.
The shutdown itself could weigh on the economy for months to come, depending on how long it lasts. About 750,000 federal workers are nearing a month without pay, and consumer spending, a key driver of the economy, could soon start to falter.
Federal workers who were laid off earlier this year due to the Trump administration’s Department of Government Efficiency efforts could be officially reflected in the jobs report when they are reported next month, potentially further worsening the monthly jobs report.
Powell said the risk of job losses has increased and is as concerning as inflation, which remains high. As a result, central banks need to keep key interest rates close to levels that neither slow nor stimulate the economy.
Most Fed officials believe the current level of the key interest rate (4.1%) is high enough to slow growth and rein in inflation, their main goals since inflation hit a 40-year high three years ago. The Fed is widely expected to cut the rate to about 3.9% on Wednesday. With job growth at risk, the goal is to raise interest rates to less restrictive levels.
Chris Dorsey, head of economic research at investment bank DE Shaw, said the lack of data during the government shutdown means the Fed is likely to remain on the trajectory it charted in September, when it expected rate cuts this month and in December.
“Imagine driving through a winter storm and all of a sudden you’re in a whiteout and you can’t see,” Dorsey said. “While you are slowing down, you will continue to go in the direction you were going, but then you will lose visibility and then make a sharp turn.”
The Fed chairman made it clear in recent remarks that the weak job market is a serious concern.
“The labor market has actually softened quite a bit,” Powell said. “Downside risks to employment appear to be increasing.”
Monthly job growth had been declining on average until the government shutdown cut off the flow of data on Oct. 1. Just 29,000 per month For the past 3 months. The unemployment rate rose to a still low 4.3% in August from 4.2% in July.
But layoffs remain low, with Powell and other officials describing a job market with “low hiring and low layoffs.”
At the same time, last week inflation report The announcement was delayed by more than a week because of the government shutdown — indicating that inflation remains high but not accelerating, suggesting that rate hikes may not be necessary to rein in inflation.
But the key question is how long the job market can remain in what Powell calls a “strange kind of balance.”
“There has been some worrying data over the past few months,” said Stephen Stanley, chief U.S. economist at investment bank Santander. “Is it a weakening trend or are we just hitting an air pocket?”
Given the uncertainty, some Fed officials have indicated they may not necessarily support lowering rates at their next meeting in December. At its September meeting, the Federal Reserve signaled that it would cut interest rates three times this year, despite disagreement among its policy committee. Nine out of 19 officials supported cuts of two or fewer.
Christopher Waller, a member of the Fed’s board of governors and one of five people the Trump administration is considering to replace Powell next year, said in a recent speech that while the jobs report is weak, other numbers suggest the economy is growing at a healthy pace.
“So, something has to give.” waller said. “Either economic growth will slow in line with a weak labor market, or the labor market will recover in line with strong economic growth.”
Waller added that because it is unclear how the conflict will play out, “we need to tread carefully when adjusting policy rates.”
Waller said he supports a quarter-point rate cut this month, assuming the shutdown ends, and that “beyond that” will depend on what the economic data says.
Financial markets expect the probability of further rate cuts in December to be more than 90%. CME Fed Watch –And so far, Fed officials have said little to quash those expectations.
Jonathan Pingle, chief U.S. economist at UBS, said he would wait to see whether Powell reiterated his assertion at Wednesday’s press conference that the risks of a downturn in the job market remain high.
“When I hear that, I think we’re on track to cut rates again in December,” he said.
