US Fed expected to announce 2nd rate cut of the year

The Federal Reserve is expected to announce today its second rate cut of the year to rescue the US job market, though its real challenge, analysts say, will be figuring out how many of these will be needed to give a meaningful prod to labour growth.

Sputnik/RIA Novosti reported that the demands before the 12 voting members of the central bank’s Federal Open Market Committee (FOMC) are not easy: Jobs growth has slowed to almost a crawl, with unemployment ticking up to a near four-year high of 4.3 percent as of September.

Compounding the problem is a US government shutdown that is already into its 29th day and threatening the livelihoods of some three million federal workers.

Figuring out the number of Fed rate cuts and the depth required for each is made trickier by the blackout on weekly and monthly jobs numbers from the Bureau of Labour Statistics - an agency working only partially due to the shutdown.

The last time the bureau reported any labour statistics was on Oct 1, the day the shutdown began.

“I’m not sure the Fed has a response to everything that’s going on here,” said Ramesh Mohan, economics professor at Bryant University in Smithfield, Rhode Island, to RIA Novosti.

“It has the tools, but no one knows how effective they’re going to be this time."

The FOMC has already done a quarter-percentage point cut in September. It has two more meetings left for this year and eight through 2026.

That’s a total of 10 meetings - enough to bring rates to even zero from their current range of 4.00-4.25 percent, should the central bank decide on a combination of quarter-percentage and half-percentage point cuts.

The Fed’s Summary of Economic Projections suggests a continued path of easing. FOMC members project that rates will fall to around 3.6 percent by the end of 2025 and continue easing to roughly 3.4 percent by the end of 2026.

Some economists argue that the job market’s current fragility requires more decisive action. But they also agree that rate cuts are a blunt tool.

Rate cuts work by lowering the cost of borrowing and encouraging aggregate demand across the entire economy.

While this helps, it may not be enough to reverse labour market weakness driven by non-monetary factors like trade tariffs, corporate uncertainty, or restrictive immigration policies.

Inflation control

And spurring jobs growth is only half of the Fed’s job. The other is price stability via inflation control. The central bank is not doing great with that either.

Data from last week showed the US Consumer Price Index grew by three per cent year-on-year in September.

The good is that it’s below the 3.1 percent projected by the market. The bad is that it came above the 2.9 percent growth in August. And the Fed’s official tolerance for inflation is just two percent.

Beyond the economic models, Fed chairperson Jerome Powell faces intense political challenges that complicate the optics of every policy move.

While the Fed is staunchly independent, Powell has been under explicit pressure from the Donald Trump administration to cut rates faster and deeper to stimulate growth.

This has led to an unprecedented level of political scrutiny and even attempts to remove or marginalise certain Fed governors.

“There is no risk-free path” anymore, Powell said in a Sept 23 speech to an audience of mostly economists in Rhode Island.

It was a phrase relevant not just to the economic tightrope walked by the Fed, but also the political obstacles it had to navigate with the administration.

- Bernama

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