On October 29th, the Fed cut rates by a quarter of a basis point to combat unemployment from surging. This cut dropped the benchmark lending rate to a range of 3.75% - 4%. This is the first time that there has been a "dueling dissent" in the decision of what to do with the Fed rates. There were two opposing views on opposite policies. One to cut rates by half a basis point and one to leave the rates as they are. Along with these dueling perspectives, the decisions for the Fed rates are also occurring when there has been no government employment data as a result of the shutdown. Employment is struggling, and the addition of jobs is at its lowest it has been since 2010. Powell has said that the decisions are currently being made during a time of blindness for the Fed. He has made it very clear that it is hard to make decisions about the conditions of the U.S. economy. Data trends and private sector data that have been released by ADP are incite into the economy but are nothing compared to the government data that is typically used and considered the "gold standard".
Along with concerns about the economy's status and the lack of information due to the government shutdown, there are concerns about inflation rates. Powell has said that, as of now, we are not seeing significant inflation, but this is mainly due to the tariffs and that businesses are doing a good job in not passing the increased expenses from tariffs onto customers. He says, though, that because of the time it takes for tariffs to reach consumers, some inflation is going to occur. Although we aren't seeing high inflation right now, tariff inflation is expected. The September CPI showed unexpectedly reasonable values; however, this is likely to change as price pressures are apparent with the new tariffs. With all this being said, the short-term inflation is hoped to be stopped by the tariffs, and this is what drove the most recent Fed rate cut. The Fed will be in a tricky position if crucial government data is still not released in the near future as a result of the government shutdown.
https://www.cnn.com/2025/10/29/economy/fed-october-rate-decision
This really shows how tricky things are for the Fed right now. They’re cutting rates to help with rising unemployment, but they don’t even have full government data because of the shutdown. It’s like trying to drive with the headlights off. The economy seems weak, inflation is calm for now, but if tariffs start hitting consumers, prices could go up fast. Powell’s job definitely isn’t easy in times like this.
ReplyDeleteThe “dueling dissent” shows how uncertain the Fed’s position is right now. Making major policy moves without full employment data makes this rate cut especially risky.
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