The U.S. Federal Reserve is expected to announce its second interest rate cut of the year on Wednesday, even as the government shutdown leaves policymakers without key economic data to guide their decision.
The two-day policy meeting — the Fed’s second-to-last for 2025 — comes amid a political standoff in Washington between Republicans and Democrats over health care subsidies, which has halted the release of most official economic indicators.
Analysts expect the central bank to proceed with a modest 0.25 percentage-point reduction, lowering its benchmark lending rate to between 3.75 and 4.00 percent, while keeping future rate decisions — particularly one expected in December — open-ended.
Without the usual flow of economic data, the Fed faces heightened uncertainty in balancing its dual mandate: controlling inflation and supporting employment. Inflation remains stubbornly above the 2 percent target, in part due to former President Donald Trump’s tariffs on key trading partners, while the labor market has cooled sharply in recent months.
“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.
The most recent consumer inflation report, delayed due to the shutdown, showed prices up 3.0 percent year-on-year in September — slightly below forecasts and enough to lift financial markets to fresh record highs. However, the Fed’s preferred inflation gauge remains well above target.
On the employment front, only 22,000 jobs were added in August, with unemployment hovering at 4.3 percent, near historic lows.
“The goal is to get it just right, and that’s a hard thing to do with such a blunt tool,” said Diane Swonk, chief economist at KPMG, referring to interest rate adjustments. Swonk expects the Fed to deliver two more rate cuts this year and end its quantitative tightening program to ease liquidity pressures.
Meanwhile, political pressure on the Fed has intensified. Trump has repeatedly criticized Chair Jerome Powell — whose term ends next year — and targeted Governor Lisa Cook, seeking her removal over allegations of mortgage fraud. Cook has challenged the effort in court, with the U.S. Supreme Court set to hear the case in January 2026.
The uncertainty surrounding the Fed’s leadership could further complicate its decisions on reappointing regional presidents early next year — a key governance process that occurs every five years.
Despite the turbulence, markets expect the central bank to stay focused on stabilizing inflation and supporting economic growth once data reporting resumes.
