The US Federal Reserve has lowered its benchmark interest rate by 25 basis points to a range of 3.75%–4.00%, responding to signs of a cooling labour market and persistent inflationary pressures.

The move — the second rate cut this year — was widely anticipated by markets. According to the CME FedWatch tool, there was a 97.8% probability that the Fed would opt for another reduction ahead of Wednesday’s decision.

In its statement, the central bank noted that job growth has moderated and unemployment has inched higher, though it remains relatively low. “Inflation has risen since earlier this year and remains somewhat elevated,” the Fed said, adding that uncertainty around the economic outlook “remains elevated.”

Balancing Growth and Inflation

Economists largely view this latest cut as part of a cautious approach by policymakers. Major institutions — including Goldman Sachs, Citigroup, HSBC, and Morgan Stanley — still expect one more 25-basis-point cut before year-end, while Bank of America stands as an outlier, predicting no further easing in 2025.

Michael Klein, professor of international economic affairs at Tufts University, told Al Jazeera that the Fed faces a “delicate balancing act.” “It must support employment and growth through lower rates, while also keeping inflation in check. For now, the central bank appears to lean slightly toward growth support,” he said.

However, Fed Chair Jerome Powell emphasized that another rate cut in December is not guaranteed. “We haven’t made a decision about December,” Powell told reporters, underscoring that the Fed remains “well positioned to respond to evolving economic conditions.”

Data Scarcity Amid Government Shutdown

The rate cut comes amid a prolonged US government shutdown, now in its 29th day — the second longest in American history after the 35-day closure under former President Donald Trump in 2018-2019.

Because of the shutdown, key economic reports — including the September jobs data — have been delayed. The only major release this month has been the Consumer Price Index (CPI), which rose 0.3% in September, bringing annual inflation to 3.0%. The report was published primarily because it was required for the Social Security Administration to determine 2026 cost-of-living adjustments, which will rise 2.8% next year.

The lack of official data may complicate the Fed’s next policy decision, as the Labor Department remains unable to compile updated figures. Powell acknowledged that while visibility is reduced, private indicators still point to a gradual economic slowdown.

Consumers and Jobs Under Pressure

Confidence among American consumers has slipped to a six-month low, according to the Conference Board, reflecting growing unease among lower-income households earning under $75,000 per year. Layoffs at major companies — including Paramount (2,000 jobs), Amazon (14,000), and Target (1,800) — have further dented sentiment.

Meanwhile, higher-income households, particularly those earning above $200,000, remain relatively optimistic and continue to drive spending, cushioning the economy from a sharper downturn.

Analysts note that tariffs and rising costs for both consumers and businesses continue to weigh on overall demand.

Market Reaction

US equity markets edged lower following the announcement. By mid-afternoon in New York, the S&P 500 and Dow Jones Industrial Average were both down about 0.3%, while the Nasdaq traded roughly flat.

The Fed’s latest move highlights its ongoing struggle to balance inflation control with economic stability — a challenge that will remain front and centre as policymakers head toward their final meeting of the year.

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