The Federal Reserve is expected to cut short-term interest rates by 25 basis points this week, the second time this year. This is to support a slowing labor market. The move is expected to put the policy rate in a range of 3.75%–4.00%.
Rising unemployment insurance claims signal continued weakness in labor demand, while moderate inflation at 3% has eased concerns about price pressures. The US government shutdown has delayed most official economic data, making the Fed’s policy guidance more reliant on expectations.
Last month’s policy statement mentioned the possibility of “additional adjustments” to rates, which is seen as a signal of more cuts to come. Vice Chair Michelle Bowman stressed that the phrase indicates continued policy easing, while analysts expect the Fed to not change its tone.
Chairman Jerome Powell is expected to be cautious in his post-meeting press conference, avoiding confirming a December cut. However, markets still expect easing to continue into early next year.
In addition to interest rates, the Fed could signal an end to its balance sheet reduction program this month. Analysts expect the discussion at the meeting to focus on communication strategies and the medium-term direction of rates.
