What To Expect From The Federal Reserve’s Interest Rate Decision on Wednesday

The Federal Reserve’s policy committee is widely expected to cut its benchmark interest rate by a quarter-point Wednesday, as concerns about the deteriorating job market outweigh inflation fears.

The Federal Open Market Committee is likely to cut the fed funds rate to a range of 3.75% to 4%, its second cut in as many meetings, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data. In recent speeches, many members of the Fed’s policy committee said they were open to cutting rates, although they remained divided about how quickly and how much to do so over the coming months.

Financial markets are pricing in near certainty the Fed will cut rates by a quarter-point Wednesday and then again at its final meeting in December. The outlook for future cuts is uncertain because the Fed is wrestling with both sides of its dual mandate from Congress to keep inflation low and employment high.

While inflation remains above the Fed’s goal of a 2% annual rate, officials have become more concerned about the health of the job market, as job creation has slowed nearly to a halt in recent months. By cutting the fed funds rate, the central bank drives down borrowing costs on short-term loans with the intention of encouraging borrowing and boosting hiring.

Tariffs are a factor in both the price increases and the job slowdown, as the import taxes fuel uncertainty among business leaders and discourage expansion, and push up prices as merchants pass costs along to customers.

Expectations for an October rate cut were cemented Friday when a report showed the Consumer Price Index rose less than expected in September. With the rate cut nearly a lock, financial markets will focus on the Federal Open Market Committee’s official statement released with the rate cut decision, and Fed Chair Jerome Powell’s post-meeting press conference that afternoon.

The Fed is now making rate decisions without much of the data it usually uses to guide its actions. Indeed, the September CPI may be the last major piece of economic data the Fed receives for some time. Important government reports, including on job growth, are being delayed by the ongoing government shutdown and may not be published for October at all.