US Fed rate cuts: America might still see another rate cut in 2025; govt shutdown clouds economic outlook – The Times of India
The US may see another rate cut this year, even as uncertainty looms over the economy due to the ongoing US government shutdown.The Federal Reserve’s second-to-last rate meeting of 2025 takes place amid a standoff between Republicans and Democrats over healthcare subsidies, which has halted the publication of nearly all official economic data. Without these insights, officials must decide on interest rates without the comprehensive information they usually rely upon.Analysts expect the Fed to proceed with a quarter percentage-point cut, lowering its key lending rate to between 3.75 and 4.00%, while remaining cautious about signalling any final rate move in December.The shutdown has intensified debate within the Fed. Policymakers are weighing whether to cut rates quickly to support a weakening labour market or hold steady in the face of inflation that remains stubbornly above the bank’s long-term target of 2%, partly driven by Donald Trump’s sweeping tariffs on major trading partners.“They’ll have to decide how much (inflation) is still to come versus how much is just never going to come, and that’s the big question right now,” former Fed official Joseph Gagnon told AFP. He added that “the strength and inflation is only temporary… but the weakness of unemployment might be more long lasting.”“In my view, that argument is going to continue to hold sway this month, because the data are still in that direction,” Gagnon, a senior fellow at the Peterson Institute for International Economics (PIIE), said.Since the shutdown began on October 1, the only major data released was US consumer inflation, which showed a 3% rise over the year to September, slightly below expectations. The news buoyed financial markets, with stocks closing at fresh records. The Fed, however, relies on a different inflation measure, which remains well above its target according to pre-shutdown data.Employment has also slowed in recent months, with only 22,000 jobs added in August, although the unemployment rate remained low at 4.3%.“The goal is to get it just right, and that’s a hard thing to do with such a blunt tool,” KPMG chief economist Diane Swonk told AFP, referring to the Fed’s key interest rate. Swonk expects two more rate cuts this year and predicts the central bank will also announce an end to its quantitative tightening programme next week amid rising liquidity risks.Political pressures have added to the Fed’s challenges. President Trump has repeatedly attacked chair Jerome Powell on his Truth Social platform and has also sought to remove Fed governor Lisa Cook over alleged mortgage fraud.Cook has contested the removal, taking the case to the US Supreme Court, which is scheduled to hear arguments in January. A ruling is unlikely before February, the deadline for the Fed board to decide on reappointing regional Fed presidents, a process conducted only once every five years.“It seems like the odds that he could do this maneuver are greatly diminished,” Gagnon said, referring to the administration’s efforts to influence the Fed’s appointments.
