The Federal Reserve is set to make its next interest rate decision on Wednesday, even as a near-total blackout of federal economic data continues amid the government shutdown.
The Labor Department, however, on Friday released one key report ahead of the meeting: the Consumer Price Index (CPI). That report showed that the inflation rate rose at a pace of 3% last month — cooler than expected. The impact of President Trump’s wide-ranging tariffs has so far been more muted than economists forecasted.
Economists say the softer inflation report likely opens the door to a rate cut on Wednesday.
“Concerns about tariffs driving prices higher are still not showing up in most categories,” Scott Helfstein, Global X’s head of investment strategy, said Friday in an email. “Nothing in the inflation print should stop the Fed from cutting rates next week. Yes, prices are higher, but not enough to keep them from helping the economy,” he added.
According to CME FedWatch, which bases its predictions on 30-Day Fed Funds futures prices, there’s a 96.7% probability that the Fed will cut its benchmark rate by 0.25 percentage points on Wednesday.
A quarter-point cut would bring down the benchmark rate to a range between 3.75% and 4%, down from the current range of 4% to 4.25%, marking the Fed’s second rate cut this year.
### What’s the argument for cutting rates?
The Federal Reserve has a dual mandate to keep both inflation and unemployment low. When inflation soars — such as when it hit a 40-year high of 9.1% in June 2022 — the Fed raises rates to make borrowing more expensive. This discourages consumers and businesses from spending, helping temper inflation.
Conversely, a weak labor market can be bolstered by lower interest rates. It becomes easier for businesses to expand and hire more workers if borrowing costs are lower.
When Fed Chair Jerome Powell announced the Fed’s first rate cut of 2025 last month, he signaled growing concern about a sharp slowdown in the labor market.
“In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen,” Powell said in September.
However, the monthly jobs report for September was not released earlier this month due to the federal shutdown.
In an October 14 speech, Powell acknowledged the data halt but added that the central bank has access to “a wide variety of public- and private-sector data that have remained available.” Based on those sources, “the outlook for employment and inflation does not appear to have changed much since our September meeting,” he noted.
Friday’s CPI report “should keep the Fed focused on the labor market in terms of the near-term policy trajectory. In the absence of the September jobs report, an October cut appears to be a done deal,” Bank of America economists wrote in a research report.
### How would a rate cut impact your money?
While a quarter-point rate cut is relatively small, it would come after September’s reduction. Economists also expect the Fed to implement a third cut at its December meeting. Together, these moves could lower the benchmark rate by 0.75 percentage points compared to January levels.
This would help reduce rates on credit cards and loans such as home equity lines of credit (HELOCs). These credit products are based on the prime rate — the interest rate banks charge each other — which in turn is influenced by the Fed’s benchmark rate.
Mortgage rates, meanwhile, have already dipped ahead of the Fed’s rate decision.
While mortgage rates aren’t set by the Fed, they are heavily influenced by its policy moves, along with bond market investors’ expectations for economic growth and inflation. The average 30-year fixed-rate mortgage dropped to 6.19% as of October 23, marking its lowest level in a year, according to Freddie Mac.
Homebuyers might not see much more of a break in the near term, economists say.
“Mortgage rates have moved down notably in advance of the Fed’s meeting, hitting their lowest level in more than a year, but further declines will depend on new developments,” Realtor.com’s chief economist Danielle Hale said in an email. “The Fed’s decisions are anticipated by the market, which means that the upcoming rate cut and several more over the next few months are already largely priced in.”
https://www.cbsnews.com/news/federal-reserve-fomc-interest-rate-meeting-decision-october-29-forecast/
