Fed cuts interest rate by a quarter point as government shutdown muddies economic outlook
By Associated Press | Published: 2025-10-29 19:35:00 | Source: Fast Company – news
The Federal Reserve cut its key interest rate on Wednesday for the second time this year as it seeks to support economic growth and employment, even as inflation remains high.
“Job gains have slowed this year, and the unemployment rate rose but remained low through August,” the Fed said in a statement issued Wednesday. “More recent indicators are consistent with these developments.” The government did not release unemployment data after August due to the lockdown. The Fed is watching private sector figures instead.
Wednesday’s decision reduces the Federal Reserve’s key interest rate to about 3.9%, from about 4.1%. The central bank had raised interest rates to about 5.3% in 2023 and 2024 to combat the biggest rise in inflation in four decades. Lower interest rates can, over time, lower borrowing costs for mortgages, auto loans, credit cards, as well as business loans.
The move comes amid a difficult time for the central bank, with hiring slowing but inflation still above the Fed’s 2% target. Compounding the central bank’s challenges is that it is navigating without the economic milestones it normally relies on from the government, including monthly reports on jobs, inflation and consumer spending, which have been put on hold due to the government shutdown. The Federal Reserve has indicated it may cut its key interest rate again in December, but the data drought is adding to uncertainty about its next moves.
The Fed typically raises short-term interest rates to combat inflation, while lowering interest rates to encourage borrowing and spending and support employment. Currently, the ECB has two conflicting objectives, so it is working to lower borrowing costs to support the labor market, while keeping interest rates high enough to avoid stimulating the economy to the point that it might exacerbate inflation.
Speaking to reporters after the Fed announced its interest rate decision, Fed Chair Jerome Powell said there were “strongly different views on how to move forward in December” at the policy meeting, and that further rate cuts were not “an inevitable outcome.”
The Fed also said Wednesday that it would stop reducing the size of its massive securities holdings, which built up during the pandemic and after the Great Recession of 2008-2009. The change, which takes effect on December 1, could over time slightly lower long-term interest rates on things like mortgages, but would not have a significant impact on consumer borrowing costs.
The Fed bought nearly $5 trillion in Treasuries and mortgage-backed securities from 2020 to 2022 to stabilize financial markets during the pandemic and keep long-term interest rates low. The bond purchases brought its stock holdings to $9 trillion.
But in the past three years, the Fed has reduced its holdings to about $6.6 trillion. To reduce its holdings, the Fed allows securities to mature without replacing them, reducing banks’ reserves. But in recent months, the cuts have appeared to disrupt financial markets, threatening to push up shorter-term interest rates.
Two of the 12 officials who voted on the Fed’s interest rate decisions disagreed, but in different directions. Fed Governor Stephen Meiran dissented at the second straight meeting in favor of a half-point cut. Miran was appointed by President Donald Trump ahead of the central bank’s last meeting in September.
Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City, voted against the move because he prefers not to change the interest rate set by the Federal Reserve. Schmid has previously expressed concern that inflation remains too high.
Trump has repeatedly attacked Powell for not lowering borrowing costs more quickly. In South Korea early Wednesday, he repeated his criticism of the Federal Reserve Chairman.
“He’ll be out of there in another two months,” Trump said. Powell’s term ends in May. On Monday, Treasury Secretary Scott Besent certainThe administration is considering five people to replace Powell and will decide by the end of this year.
Powell was asked about the impact of the government shutdown, which began on October 1 and interrupted the distribution of economic data. Powell said the Fed has access to some data that gives it “a picture of what’s going on.” “If there is a significant or material change in the economy, one way or another, I think we will pick that up through this,” he added.
But the Fed chairman acknowledged that the limited data may prompt officials to proceed more cautiously at its next meeting in mid-December.
“There is a possibility that it would make sense to be more cautious about moving (on interest rates).” “I’m not committed to that,” Powell said. “I’m just saying it’s almost certain to say, ‘We really can’t see, so let’s slow down.’”
The September jobs report, which was scheduled to be released three weeks ago, remains delayed. This month’s employment numbers, which are scheduled to be released on November 7, will likely be delayed and may be less comprehensive when they are finally released. The White House said last week that October Inflation report It may never be released.
Before the government shutdown cut off data flows, monthly employment gains had weakened to average Only 29,000 per monthFor the past three months, according to Ministry of Labor data. The unemployment rate rose to a low of 4.3% in August, from 4.2% in July.
Recently, several major companies have announced… Sweeping layoffs– Including UPS, AmazonAnd Target – which threatens to boost the unemployment rate if it continues. Powell said the Fed is monitoring layoff announcements “very carefully.”
Meanwhile, last week Inflation report– which was released more than a week late due to the lockdown – showed that inflation remains high but is not accelerating and may not need higher interest rates to tame it.
The government’s first report on the economy’s growth in the July-September quarter was scheduled to be published on Thursday, but will be postponed, as will Friday’s report on consumer spending that also includes the Fed’s preferred measure of inflation.
-By Christopher Rugaber, AP Economics Writer
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(Tags for translation) Federal Reserve
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