Federal Reserve cuts rates again amid slowing labour market split over December move

The US Federal Reserve has reduced interest rates for the second consecutive month, moving borrowing costs down to a range of 3.75 to 4 per cent. Policymakers made this decision in response to growing concerns about a weaker labour market, even as a lack of key economic data clouds the outlook due to an ongoing government shutdown.

This latest cut was widely expected by financial markets, yet the path forward for monetary policy remains far from clear. Jerome Powell, Fed chairman, has signalled that a further cut in December is not assured, emphasising a growing divide among members of the rate-setting committee. Stephen Miran, an ally of President Trump and the Fed’s newest member, supported a larger cut of half a percentage point. Jeffrey Schmid, president of the Kansas City Fed, voted for no change at all, marking the first three-way monetary policy split since 2019.

Markets had largely priced in another cut for December with over 90 per cent expectation, but Powell’s comments tempered those hopes, dropping the probability to 88 per cent immediately after his remarks. US government bond yields rose, the dollar strengthened slightly against other major currencies, and stock markets reversed recent record gains.

Persistent uncertainty surrounds official economic indicators as the federal government shutdown has stalled publication of critical labour market data. Powell likened the situation to “driving in the fog” and noted the need for further caution when deciding further policy moves. Private sector surveys have emerged as the main source for economic trends in the absence of government data, showing consumer confidence at a six-month low and more pessimism among lower-income households.

Rising employment downside risks have taken centre stage at recent meetings, with the Fed aiming to support jobs growth while remaining vigilant about inflation. Annual consumer prices pushed up to 3 per cent in September, the highest reading since January, driven in part by tariffs that are expected to have only a temporary effect on prices. Powell reiterated the need to prevent these rises becoming a persistent inflation issue.

The rate cut comes as the Fed prepares to end its quantitative tightening programme on 1 December. This will halt the selling of government bonds and is expected to ease credit strains, particularly for the private credit sector and regional banks. Elsewhere, Canada’s central bank also cut rates by a quarter point on Wednesday, while the European Central Bank is likely to hold steady in the coming week.

The political backdrop is increasingly fraught, with President Trump openly criticising Powell for not easing policy faster. The White House is actively seeking Powell’s successor, and the internal dynamics of the Fed’s committee are becoming more contentious. As uncertainty persists over the health of the labour market and the direction of monetary policy, both investors and policymakers are hoping for clarity from overdue government reports ahead of the December meeting.