Fed Rate Cut Coming But Future Cuts May Pause as Inflation Lingers

TLDR

• The Federal Reserve is expected to cut interest rates by 0.25% on Wednesday, marking the third consecutive rate cut this year
• The Fed’s decision comes during a government data blackout caused by the fall shutdown, leaving policymakers without October jobs and inflation reports
• Committee members are split between those favoring cuts to support the weakening labor market and those worried about inflation remaining above the 2% target
• Alternative data shows economic weakness, with ADP reporting 32,000 net jobs lost in November and small businesses cutting 120,000 positions
• Fed officials may signal a pause in future rate cuts as inflation sits at 2.8% and debate continues over tariff impacts on the economy

The Federal Reserve is set to announce its third consecutive interest rate cut on Wednesday. Markets expect a 0.25% reduction that would bring the key rate to a range of 3.5% to 3.75%.

The decision comes at an unusual time for the central bank. A prolonged government shutdown this fall created a major data blackout.

The Bureau of Labor Statistics canceled the October jobs report entirely. The November report remains delayed and won’t arrive until December 16.

Inflation data faced similar problems. October’s consumer price index was canceled, and November’s numbers won’t be released until December 18.

The Fed’s rate-setting committee must make decisions with limited information. Members are debating two different concerns about the economy.

Some officials want to continue cutting rates to help the labor market. Others believe the Fed has already eased enough and worry about inflation.

The most recent inflation reading showed the personal consumption expenditures index at 2.8% in September. This number rose from 2.7% in August and 2.6% in July.

The Fed’s target for inflation remains 2%. The gap between current levels and the goal concerns some policymakers.

Labor Market Shows Signs of Weakness

Alternative data sources paint a worrying picture of employment. ADP reported that the U.S. economy lost a net 32,000 jobs in November.

Small businesses cut 120,000 positions during the same month. These numbers suggest the labor market is slowing down.

A government report on job openings arrived Tuesday morning. The data showed hiring rates fell to 3.2% while the quit rate dropped to a new low of 1.8%.

Analysts at Citigroup described this as “very low-churn dynamics” in the labor market. The report also indicated that October jobs data will likely show a 65,000-worker decline from federal buyout offers.

Bank executives are seeing pressure on their business customers. Wells Fargo CEO Charlie Scharf said tariffs are creating short-term challenges.

Companies are focusing on costs rather than growth investments. This approach has held back hiring and business expansion.

JPMorgan executive Marianne Lake described the current environment as “more fragile.” She noted that consumers and small businesses look resilient but have less capacity to handle additional stress.

The Fed’s decision Wednesday will likely include what markets call a “hawkish cut.” This means reducing rates while signaling that future cuts may not happen soon.

Former Fed official Bill English expects the committee to suggest they are comfortable with current policy. He anticipates the message will indicate no need for additional cuts in the near term.

Chair Jerome Powell will hold a press conference after the announcement. His tone and the committee’s statement will provide clues about future rate decisions.

The Fed may also address its balance sheet management. Some expect an announcement about resuming bond purchases after previously halting the runoff of maturing bonds.

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