The Federal Reserve cut interest rates by a quarter percentage point Wednesday for the second meeting in a row, even as the government shutdown has left policymakers without key data to guide monetary policy.
The central bank voted in a split decision to cut its benchmark interest rate to a range of 3.75% to 4.00%. President Trump’s newest appointed governor, Stephen Miran, disagreed with the decision, preferring to cut rates by half a percentage point, while Kansas City Fed president Jeff Schmid also dissented, favoring holding rates steady.
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
Miran said ahead of the Fed’s meeting that he was concerned renewed trade tensions with China, which have since lessened, posed risks to the economic outlook. He also said he’d like to cut rates to a neutral setting — a level designed to neither spur nor slow growth — more quickly than his colleagues because he doesn’t see tariffs leading to higher inflation and wants to avoid causing damage to the labor market.
Schmid has said inflation is still too high and the previous level of interest rates was the “right place to be.” He’s cautioned that aggressively boosting demand could raise the risk of an outsized increase in prices as firms gain pricing power and increase the pass-through of tariffs to consumers.
Not since September 2019 have there been dissents on both sides of a Fed interest rate decision.
Read more: How jobs, inflation, and the Fed are all related
To begin its policy statement, the Fed acknowledged the ongoing government shutdown has muddied data collection efforts and prevented officials from having a complete picture of the US economy, noting its assessment of the economy is based on “available indicators.” Later in its statement, the Fed said it “will continue to monitor the implications of incoming information for the economic outlook.”
Since the US government shutdown began on Oct. 1, the September jobs report remains unpublished, and that month’s inflation data was published over two weeks late. The October jobs report, scheduled for release at the end of next week, is likely to be delayed. The White House said October’s inflation report likely won’t be published.
Policymakers indicated in their statement that they don’t see any change in the state of the job market since they stopped getting official labor market data.
“Job gains have slowed this year, and the unemployment rate has edged up, but remained low through August; more recent indicators are consistent with these developments,” the statement read.
It also reiterated that “downside risks to employment rose in recent months.”
Officials reiterated in their statement that, “in considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
The Fed also said it will stop shrinking its balance sheet on Dec. 1. The change in language comes after Fed Chair Jerome Powell said earlier this month that the Fed may be approaching the point in the coming months where policymakers can stop their balance sheet runoff, which is the allowance of bonds to mature and roll off the Fed’s portfolio, thereby decreasing the size of its balance sheet.
Powell noted at the time that some signs have started to emerge that liquidity conditions are gradually tightening, and the committee wants to avoid the kind of strains in money markets experienced in September 2019.
The Fed’s long-stated plan is to stop the balance sheet runoff when reserves — funds held by banks’ deposits — at the Fed are somewhat above the level they judge as “ample.”
Fed officials cut their benchmark interest rate for the first time this year in September, and the median of the 19-member FOMC committee penciled in two more rate cuts this year, even as the government shutdown has left policymakers flying blind without most official data to make a decision on setting interest rates.
In a press conference following the meeting, Powell emphasized another rate cut at the Fed’s next meeting in December is “not a foregone conclusion — far from it.”
“There were strongly differing views about how to proceed in December,” Powell said.
The Fed’s challenge is that inflation remains sticky, hovering well above the central bank’s 2% target. The latest reading of the Consumer Price Index showed that “core” prices, excluding volatile food and energy prices, rose 3% for the month of September, a tenth of a percent lower than in August, but still holding at the 3% level. At the same time, official labor market data through August showed a sharp slowdown in payroll growth. Without the jobs report for September, central bankers have had to rely on private sector data and anecdotal surveys, which have shown continued weakness in payroll growth.
The decision to ease monetary policy again Wednesday follows months of pressure from Trump to bring rates down as the president and his White House allies have repeatedly accused Powell of being “too late.”
Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.
Click here for the latest economic news and indicators to help inform your investing decisions
Read the latest financial and business news from Yahoo Finance
