US: Fed set for second consecutive rate cut as economic crosscurrents mount

Washington: The Federal Reserve (Fed) is widely anticipated to lower its benchmark interest rate by a quarter of a percentage point this week, marking the second such easing measure this year. The primary objective is to provide support amid signs of a cooling labour market, and financial markets are pricing in further cuts in the coming months.

Recent data, including a rise in unemployment insurance claims, suggests a moderation in labour demand. While a government shutdown has delayed the publication of key official statistics—leaving the unemployment rate last officially reported at 4.3% in August—these emerging signals are being closely monitored.

Simultaneously, concerns over inflation have been tempered by milder-than-expected readings. Last week’s Consumer Price Index report, showing a 3% annual increase through September, has alleviated immediate fears of tariff-driven price pressures.

The Fed's own communications have set the stage for continued easing. The policy statement released after its September meeting introduced a commitment to "additional adjustments," a phrase explicitly highlighted by Fed Vice Chair for Supervision Michelle Bowman as signalling a willingness to reduce rates further. Analysts do not expect the Fed to alter this forward guidance at this meeting.

The economic outlook remains highly fluid. Ongoing global trade negotiations could significantly alter the trajectory for both growth and inflation. Furthermore, a resolution to the government shutdown would unleash a backlog of economic data, including three months of employment reports before the Fed's December meeting, which could reshape the policy calculus.

A rate cut on Wednesday would lower the federal funds rate to a target range of 3.75% to 4.00. Market participants are currently betting on additional easing at the subsequent meetings in December and January.

The decision comes amid a complex political and internal backdrop. The Trump administration continues to exert public pressure for lower rates, while Fed Chair Jerome Powell navigates a deep division within the central bank's own ranks. Since the September cut, several policymakers have voiced caution, citing inflation that has persisted above the Fed's 2% target. However, a larger contingent has indicated that further insurance cuts are necessary to mitigate the risk of a more pronounced slowdown in the job market.