The Fed announces its second rate cut of the year

• The Fed cut rates by a quarter percent amid a monthlong government shutdown.
• The shutdown delayed key economic data like the jobs report, complicating the Fed’s decision-making.
• The central bank has seen increased internal division this year over policy moves.

The Fed announced a quarter-percent cut Wednesday, even as the government shutdown disrupts major data releases.

The second rate reduction of the year is in alignment with expectations: CME FedWatch projected a near-100% chance of a cut before the meeting and the central bank previously penciled in cuts for its last two meetings of 2025 in its September economic projections.

The Federal Open Market Committee had to make a decision this month without a full economic picture. The government shutdown — which is approaching the one month mark — led to a delay of the Bureau of Labor Statistics’ consumer price index inflation report until last Friday. The September jobs report still hasn’t been released, and would have given updated unemployment and job creation numbers.

In recent meetings, Chair Jerome Powell has emphasized the importance of the Fed’s dual mandate goal: maximum employment and tempered inflation. A second cut suggests a continuation of this strategy as the job market started to look softer over the summer.

“Our policy had been really skewed toward inflation for a long time, really,” Powell said at the September meeting. “Now we see that there’s downside risk clearly in the labor market. And so we’re moving in a direction of more neutral policy.”

The jobs report wasn’t released in October

The government shutdown means that the Fed is missing key pieces of jobs data.

Without a September jobs report, Fed leaders had to lean on previous patterns in the labor market. Job openings have declined in recent months and unemployment has crept up. Over the summer, the number of Americans looking for work eclipsed the number of available roles.

The consumer price index report came a couple of weeks late, but the Fed now has insight into price growth. The inflation measure rose slightly below the 3.1% forecast in September, hitting 3% for the first time since January as tariffs have gone into effect. The central bank’s goal is to push inflation closer to 2% in the long run.

Powell is likely leaning on other economic indicators, too. Soft markers like consumer sentiment dipped in October, meaning that Americans are feeling less financially secure.

“Changes to government policies continue to evolve, and their effects on the economy remain uncertain,” Powell said last month. “Higher tariffs have begun to push up prices in some categories of goods, but their overall effects on economic activity and inflation remain to be seen.”

Congress has not yet reached a budget agreement, and it’s unclear when the government will reopen.

A Fed divided

The Fed has been uncharacteristically divided in recent decisions.

Fed newcomer Stephen Miran preferred a half-percentage point cut over October’s quarter-point decision and governor Jeffrey Schmid wanted to hold rates steady.

In the September meeting, a few committee members indicated their dissent toward Powell’s restrictive policy patterns earlier this year, and one member called for a 1.25% rate reduction by the end of the year last month — far more than any other voting members. Minutes from the meeting also show Fed governor Michelle Bowman wanted a deeper rate cut.

Powell has faced mounting political pressure from the Trump administration. The president has called on the Fed to cut rates: “I really believe that Jerome ‘Too Late’ Powell is an OBSTRUCTIONIST!” he wrote in an October 1 Truth Social post.

And, personnel changes on the Federal Open Market Committee could give the White House more sway over monetary policy. Miran, chair of the White House’s Council of Economic Advisors and Trump appointee, was confirmed as a new Fed governor last month. He replaced Adriana Kugler, who resigned in August.

The president has called on Fed governor Lisa Cook to resign, alleging that she committed mortgage fraud. Cook remains in her seat and a September Reuters report found evidence the allegations were false.

Powell has maintained that the Fed is nonpartisan and will make decisions based solely on economic data. A sustained pattern of rate cuts could ease costs for consumers looking to borrow for mortgages, auto loans, and credit cards.

“Lower rates should support economic activity,” Powell said. “I don’t know that one rate cut will have a visible effect on that. But over time a strong economy with a strong labor market is what we’re aiming for and stable prices.”

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