At the conclusion of the Federal Open Market Committee’s next meeting on October 29, interest rates are expected to be cut. This potential move would follow a September cut and may take the Federal Funds rate to 3.75% to 4%. If so, it would be the first time since late 2022 that interest rates have been so low.
However, there are expected to be differing views across the FOMC. Recent Trump appointee Stephen Miran might vote for even lower rates as he did in September. However, other policy makers see a balance between inflation risks and a jobs market that is potentially slowing, but not breaking. That assessment points to a somewhat more cautious approach to cutting rates. Still, it is expected that most policymakers could back a potential October cut.
The Path After October
The path for interest rates beyond October is less clear. That’s because the most recent September cut in rates can be viewed in two ways. Firstly, as a more tactical move, dialing back the restrictive interest rates needed to address the recent bout of high inflation as inflation has cooled. That would be a broadly similar potential approach to the cuts made in late 2024.
However, anticipated cuts could also be seen as a more pronounced measure needed to provide support to a weakening job market. For now the job market appears to have slowed, but in a measured way.
If jobs data weakened, the FOMC may be inclined to cut further. Policymakers may offer clues as to which path they view as more likely, but for now, they await incoming data, and some of that data is delayed or absent due to the government shutdown.
Some Downside Risk For Markets
The market’s expectation is that this round of cuts is likely to continue at least until spring 2026 according the CME’s FedWatch Tool. This measures the implied assessment of fixed income markets. Specifically the Fed Funds rate may be closer to 3% by March 2026 on this forecast. As such, that creates some downside risk for markets from the Fed’s statements.
The markets expectations might be viewed as a little ahead of statements from policymakers. With policymakers perhaps taking a more balanced view on the future path for rates according to recent statements. Also, if rates do move substantially lower from here then that may come in response to unwelcome bad jobs data.
What To Watch For
If the FOMC do cut interest rates as broadly anticipated, it will be important to track dissents to that decision. Stephen Miran is likely to dissent in favor of larger cuts, it’s unclear if that view will be joined by any other policymakers. However, if any policymaker is in favor of holding rates steady, as projections from September might imply is possible, that would be notable and might cause markets to reconsider relatively dovish near-term interest rate expectations.
Also, with the government shutdown limiting some economic statistics, the FOMC’s own interpretation of the economy may carry greater weight than usual. That’s because Fed officials are crunching economic data that is less readily available to the markets in a digestible form due to the government shutdown limiting statistical economic releases.
An October interest rate cut is broadly expected, but the markets will be watching for whether the FOMC is on a more committed path to lower interest rates, or is taking a more tactical approach.