Update 905 — Fed Again Cuts Rates,
Weighing Labor Weakness, CPI Gains
The Federal Reserve cut interest rates by 25 basis points, as expected, at the conclusion of its October FOMC meeting this afternoon. Fed Chair Powell noted that the outlook for inflation and the labor market has not significantly shifted since September. Fed Governor Stephen Miran dissented, voting instead for a 50 basis-point cut, while Fed Bank of Kansas City Jeffrey Schmid dissented, supporting a pause. For the third consecutive FOMC meeting, a Trump-appointed
Committee member has dissented, supporting rate cuts beyond the preference of the majority.
Powell did not hint at whether the Committee will hold interest rates steady or cut rates once again at their next meeting in December. That decision will be critical as the Fed seeks to balance competing risks to its dual mandate of stable prices and maximum employment. The decision will be particularly challenging should the ongoing government shutdown continue to block the release of federal government data on the economy, which regularly helps shape FOMC members’ decisions. We review and preview below.
Best,
Dana
Fed Cuts Rates by 25 BPs a Second Time
The Federal Reserve has announced that it cut interest rates by 25 basis points for the second time this year, as officials seek to bolster the weakening labor market, even as inflation rises. The broadly anticipated decision came at the conclusion of the Federal Open Market Committee’s (FOMC) October meeting this afternoon.
The decision was not unanimous and marked the third consecutive meeting in which at least one FOMC member dissented. Such dissents were historically rare as FOMC members kept disagreements internal and agreed to show a unanimous vote. The recent consecutive dissents underline increasingly divergent visions of the path ahead for monetary policy among Committee members and suggest that projections of future interest rate cuts, which each FOMC participant will plot in December, could include more outliers than usual.
Fed Governor Stephen Miran, who was recently appointed by President Trump, dissented, supporting a 50 basis-point cut instead of a 25 basis-point cut, just as he had at the Committee’s last meeting in September. Miran has not resigned from his position as chair of the White House Council of Economic Advisors, where he directly serves President Trump, who has pressured the Fed to dramatically lower interest rates. President of the Federal Reserve Bank of Kansas City Jeffrey Schmid also dissented, taking the opposing position that the Committee should instead hold rates steady.
At the FOMC’s July meeting, which took place before Miran was confirmed to the Fed’s board, two Trump-appointed Fed governors – Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman – dissented, supporting a 25 basis-point cut instead of a pause.
At Federal Reserve Chair Jerome Powell’s press conference following the meeting, he said that the outlook for inflation and employment has not changed much since the FOMC’s last meeting in September, with conditions in the labor market appearing to be gradually cooling and inflation remaining somewhat elevated.
He also said that another rate cut at the FOMC’s final meeting of the year in December is not a “foregone conclusion,” given the broad range of views among members on the appropriate path ahead. Powell also emphasized the challenging nature of the decision, with the Fed’s dual mandate of price stability and maximum employment in tension, and FOMC officials seeking to balance these competing risks.
Powell also noted that a lack of federal government data during the ongoing government shutdown may lead Committee members to take a more cautious approach. Powell noted that the federal government shutdown will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends.
Fed Cuts as Inflation Rises, Labor Market Softens
The FOMC began raising the federal funds rate from near zero in early 2022 in an effort to combat rising pandemic-era inflation. The Committee raised rates to the 5.25 to 5.5 percent range in its most aggressive series of rate hikes since the 1980s. It then held rates steady at this elevated level until late last year, when it lowered rates to the 4.25 to 4.5 percent range. The Committee held rates at this level until its last meeting in September, when it began cutting rates once again. This afternoon’s cut brings the federal funds rate to the 3.75 to 4.0 percent range.
Back in 2022, the FOMC began raising rates as the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, rose to a peak of 7.1 percent. By late last year, inflation had fallen to 2.3 percent, and FOMC members projected inflation would decrease further over the coming year and reach the Fed’s two percent target in the longer run, leading them to cut rates by 1.0 percentage point over their final three meetings of last year.
This year, inflation instead ticked up to 2.7 percent in August as economic risks remained elevated, including by the Trump administration’s sweeping tariffs on imports from America’s trading partners across the globe, and FOMC members held rates steady until weakening in the labor market pushed them to change course.
Throughout this interest rate cycle, the labor market was largely seen as resilient, with monthly job gains strong and the unemployment rate near a historic low, but job gains have moderated significantly, and the unemployment rate has ticked up. Job gains over the period from March 2024 to March 2025 were revised down by 911,000 jobs, revealing that the labor market was significantly softer in 2024 and early 2025 than previously thought. Average monthly job gains slowed to 29,000 over the three months ending in August. As Fed Chair Powell noted, a good part of the slowdown in job gains likely reflects a decline in the labor force due to lower immigration and labor force participation, though labor demand has softened as well. The unemployment rate has also risen to 4.3 percent in August, remaining relatively low but reaching its highest level since October 2021.
Rising inflation and a cooling labor market place the Fed’s dual mandate in tension, leaving FOMC members in a particularly challenging position as they deliberate on the appropriate path forward.
Government Shutdown Leaves Fed Without Key Data
The ongoing government shutdown has disrupted the collection and release of government data on inflation and the labor market, which FOMC members regularly incorporate into their assessments of the economy and their ultimate interest rate decisions.
The release of the September jobs report, which was scheduled for October 3, two days after the shutdown began, has been delayed. The Department of Labor has suspended all operations of the Bureau of Labor Statistics (BLS), which releases the monthly report, for the duration of the shutdown and announced that all economic data scheduled to be released during the funding lapse will not be published. The Labor Department has also announced that all active data collection activities for BLS surveys will cease as the shutdown drags on.
According to Dr. Erica Groshen, who led the BLS from 2013 to 2017, the September jobs report was almost certainly prepared and ready to go by October 1, when the shutdown began, suggesting that the key report could have easily been released despite the lapse in government funding. The report was expected to show a moderate 50,000 jobs added to the nation’s economy and the unemployment rate remaining at 4.3 percent in September.
The September Consumer Price Index (CPI) report, showing inflation for the month, was released last Friday, ten days after it was initially scheduled to be released. The report was released only after the BLS recalled some staff furloughed amid the ongoing shutdown to compile the report using data that had already been collected in September. The report was needed to enable the Social Security Administration to determine the 2026 cost-of-living adjustment – the annual increase to Social Security and Supplemental Security Income benefits for more than 72.5 million Americans – by the statutory November 1 deadline mandated to ensure the accurate and timely payment of benefits.
The absence of gold standard government data left FOMC members to rely on a combination of private and public data sets in making this week’s monetary policy decision. This included labor market data from payroll provider Automatic Data Processing (ADP). Yesterday morning, ADP announced that it will make weekly preliminary private sector employment data available to the public, after reports that the company had terminated a longstanding agreement to share this data with the Fed amid the ongoing shutdown. The reports of the agreement’s termination underscore the importance of government data to ensure that monetary policymakers are not flying blind as they make critical decisions.
The federal government data blackout is expected to continue as the shutdown persists. The Bureau of Economic Analysis in the Department of Commerce has also suspended operations, including its releases of economic data, until Congress appropriates funding for the 2026 fiscal year. This has delayed the release of estimated Gross Domestic Product (GDP) data for the third quarter and the PCE Price Index for September, which were set to be released by the BEA on Thursday and Friday, respectively.
A continued absence of federal government data would leave FOMC members with even less data to inform their understanding of the economy ahead of their final meeting of the year, during which Committee members will not only decide whether to hold interest rates steady or cut rates once again, but also provide projections on the expected path for inflation, unemployment, GDP growth, and interest rates over the next year. The FOMC meets once more this year — on December 9 and 10.