What to expect from the Fed’s interest rate decision on Wednesday

The Federal Reserve’s policy committee is widely expected to cut its benchmark interest rate by a quarter of a percentage point on Wednesday, as concerns about a deteriorating labor market outweigh inflation concerns.

The Federal Open Market Committee is likely to cut the federal funds rate to a range of 3.75% to 4%, its second cut in as many meetings, according to CME Group’s FedWatch tool, which forecasts price movements based on federal funds futures trading data. In their recent speeches, several members of the Fed’s policy committee said they were open to cutting interest rates, though they remained divided on how quickly and how far to do so over the coming months.

Financial markets are pricing in almost certainty that the Fed will cut interest rates by a quarter point on Wednesday and then again at its last meeting in December. The prospects for future cuts are uncertain as the Fed grapples with both sides of its dual mandate from Congress to keep inflation low and employment high.

While inflation remains above the Fed’s target of an annual rate of 2%, officials have become more concerned about the health of the labor market, as job creation has slowed almost to a halt in recent months. By lowering the federal funds rate, the central bank lowers borrowing costs on short-term loans with the goal of encouraging borrowing and promoting employment.

Tariffs are a factor in rising prices and slowing jobs, as import taxes fuel uncertainty among business leaders and discourage expansion, pushing up prices as traders pass on costs to customers.

Expectations for an October rate cut were strengthened on Friday when a report showed that the consumer price index rose less than expected in September. As the rate cut comes to a close, financial markets will focus on the Federal Open Market Committee’s official statement issued with the rate cut decision, and Fed Chairman Jerome Powell’s press conference that afternoon.

The Fed now makes interest rate decisions without much of the data it normally uses to guide its actions. In fact, the September CPI may be the last major piece of economic data the Fed receives for some time. Important government reports, including those on job growth, are being delayed due to the ongoing government shutdown and may not be published in October at all.