Powell Has Backing for 2025 Rate Cuts and Then Things Get Cloudy
The Federal Reserve is ready to cut interest rates again this month, because right now a weakening job market outweighs inflation fears. But that balance may not hold for very long.
There’s a sizable Fed contingent calling for caution – pointing to prices that have been running above-target for years and still face upward pressures. Even some policymakers who are open to two more rate cuts this year aren’t confident projecting that trajectory any further ahead.
All this means the path for borrowing costs into 2026 is much less clear than the steady downward drift that financial markets are currently betting on.
The economic data isn’t helping, because it points in different directions – growth and consumer spending are resilient while hiring has slowed. The government shutdown, which has frozen a whole swath of key releases, only makes matters worse. And the weekly commentary from Fed officials is turning into an increasingly fractious debate.
Powell’s Jobs Warning
The task of herding these diverging positions into policy falls to Chair Jerome Powell, who says there are dangers in delaying a move to address employment risks – signaling a cut is coming on Oct. 29, the Fed’s next decision day.
Anemic job gains over the past few months, coupled with massive downward revisions to earlier numbers, have upended the widely held view that US labor markets were in robust health. The new go-to label is a low-hiring, low-firing economy, with little sign of large-scale layoffs. Powell says this equilibrium may prove fragile.
“You’re at a place where further declines in job openings might very well show up in unemployment,” he told an economics conference on Oct. 14.
His comments were taken as cementing a quarter-point cut this month. Traders in futures markets already expected that and are convinced there’ll be another one in December. If they’re right, it would match the median projections penciled in last month by Fed officials.
Things will likely get more complicated after that – or perhaps even sooner, according to former St. Louis Fed President James Bullard.
“October is going to happen,” Bullard said. But while a follow-up cut remains likely, “the fact that inflation is remaining high and the fact that growth looks pretty strong is putting December at risk.”
Source : Bloomberg.com
