Federal Reserve Faces Division Over Possible Rate Cut as Year Ends

The Federal Reserve enters its final policy meeting of a turbulent year with internal divisions over whether to implement a further interest rate cut. Officials at the US central bank must decide how best to steer the economy amid unprecedented pressures, including political influence, uncertain economic data, and a notable shift in its dual mandate of price stability and employment.

The latest meeting comes after a disruptive six-week federal government shutdown, which led to the suspension of official statistics gathering by the Bureau of Labour Statistics. As a result, policymakers are working with an incomplete picture of recent economic developments, complicating their assessment and judgement. Interest rates currently stand within a range of 3.75 to 4 per cent, following two half-point reductions after the September and October meetings.

Recent cuts marked a change in policy that began last autumn, reversing the stance taken in the first half of the year when most committee members resisted loosening monetary policy. At that time, uncertainty over tariffs contributed to the reluctance to lower rates. Now, an increasing number of members support the call for a third cut before year end, though agreement remains far from unanimous.

Inflation has climbed from 2.3 per cent in April to 3 per cent in September, while unemployment has risen from 4 per cent in January to 4.4 per cent by September. This parallel increase adds complexity to the committee’s decisions. Chairman Jerome Powell has acknowledged that the central bank possesses just one primary instrument to respond, highlighting the impossibility of bringing inflation down while simultaneously reducing unemployment.

The October statement from Powell indicated most committee members prioritised concerns about the labour market over inflation. However, without full economic data, officials are forced to act with extra caution. Powell famously likened the situation to driving in fog, urging colleagues to proceed at a measured pace until the outlook becomes clearer.

Additional political pressures are shaping the discussions. President Trump is reportedly considering the installation of Kevin Hassett, a longstanding ally and advocate of looser monetary policy, as the future chair of the Fed. Powell’s own tenure concludes in May, making the outcome of this deliberation particularly significant. The Open Market Committee, comprised of twelve voting members, will announce its decision on Wednesday.