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.