Fed Expected To Cut Interest Rates Again In October

The Federal Open Market Committee is widely expected to cut interest rates on October 29, likely reducing the Federal Funds rate to 3.75%-4%, driven by softening labor market data and manageable inflation, with several policymakers publicly advocating for such a move. While some officials, including Chair Powell, express caution about overly aggressive easing, the immediate outlook points to a cut. However, the ongoing government shutdown is delaying critical economic data releases, which could complicate the clarity of future monetary policy decisions beyond the imminent cut.

Analysis

The Federal Open Market Committee is expected to cut rates again at the conclusion of its next meeting on October 29. Should this cut occur, it would take the Federal Funds rate to 3.75% to 4%. Fixed income markets project a cut and further cuts in 2025 were generally forecast in the FOMC’s own Summary of Economic Projections from September. Labor market data has been fairly soft in recent months and inflation, though above the FOMC’s 2% annual goal, appears manageable. This means that the FOMC may be inclined to cut to help manage potential risks to the jobs market. Calls For Lower Rates From Some Policymakers Three members of the Federal Open Market Committee, notably Waller, Miran and Bowman, have been particularly public in supporting future interest rate cuts. Christopher Waller has made several speeches outlining the case for lower interest rates. He said, "I anticipate additional cuts over the next three to six months, and the pace of rate cuts will be driven by the incoming data." At a speech in Miami on August 28. This was prior to the FOMC’s most recent meeting, but there’s no indication that Waller’s views have materially changed. Recent FOMC appointee Stephen Miran has been very dovish, calling for short-term rates to be closer to 2% at a recent speech in New York. However, despite his academic arguments, this appears to be broadly following President Trump’s request for much lower rates, since Trump recently nominated Miran to the FOMC. Michelle Bowman said at a speech in New York on September 26 that. "In my view, the recent data, including the estimated payroll employment benchmark revisions, show that we are at serious risk of already being behind the curve in addressing deteriorating labor market conditions." More Nuanced Views From Other Officials However, other FOMC members have been more nuanced in their recent statements. For example Federal Reserve Chair Jerome Powell said, "If we ease too aggressively, we could leave the inflation job unfinished and need to reverse course later to fully restore 2 percent inflation. If we maintain restrictive policy too long, the labor market could soften unnecessarily. When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate." As part of a speech on September 23. On October 3, Philip Jefferson said, "I supported a 25 basis point cut in our target range at the last FOMC meeting. This change moved our policy rate closer to a more neutral stance while maintaining a balanced approach to promoting our dual-mandate objectives." Overall there appears a few members of the FOMC who see a clear case for interest rate cuts, others have less clear conviction. Still, the general perspective is that interest rates are likely to move lower. The Impact Of The Economic Shutdown The government shutdown will not impact the day to day operations of the Federal Reserve or scheduled meetings to set interest rates, but government statistical reporting is impacted. This means that the jobs report for September was not released as scheduled on October 3 and other reports may be missed before the FOMC’s next meeting, depending on how long the government shutdown lasts. That’s because economic reporting is deemed a non-essential function of government, and not operational during a government shutdown. Of course, policymakers have other sources of data, such as private data releases and their own data sources and models, but the absence of certain data may complicate monetary decision making. What To Expect It appears highly likely that the FOMC cuts interest rates on October 29, but the extent of cuts beyond that is less clear. The lack of certain economic data due to the government shutdown complicating the economic picture somewhat for policymakers. The Federal Open Market Committee (FOMC) is poised to cut the Federal Funds rate to a 3.75%-4.00% range at its upcoming October 29 meeting, a move largely priced in by fixed income markets and motivated by a softening labor market and manageable inflation. A vocal dovish contingent within the committee, including members Waller, Miran, and Bowman, is advocating for further easing, with Bowman citing a risk of being 'behind the curve' in addressing deteriorating labor conditions. This contrasts with more measured views from officials like Chair Jerome Powell, who emphasized the need to balance the dual mandate risks of acting too aggressively on rates versus maintaining a restrictive policy for too long. A significant complication is the ongoing government shutdown, which has halted the release of essential economic statistics, including the September jobs report. This lack of official data obscures the economic picture and complicates the FOMC's ability to formulate a clear policy path beyond the expected October cut, making the trajectory for 2025 less certain.

Key Decisions for Investors

• Fixed income investors should recognize that the October rate cut is largely priced in; the primary focus should be on the FOMeC's forward guidance, which is now less certain due to the government shutdown's effect on economic data.
• Monitor the duration of the government shutdown, as a prolonged halt in key economic reporting significantly elevates the risk of a monetary policy surprise or misstep, potentially leading to heightened market volatility.
• Scrutinize the language of the FOMC statement and Chair Powell's commentary for signals on the future pace of cuts, as the explicit division between dovish members and more cautious officials makes forward-looking tone the key market catalyst.