Federal Reserve poised for second rate cut despite murky economic data

Highlights:

• The U.S. Federal Reserve is likely to implement its second interest rate reduction of the year on Wednesday, seeking to stabilize economic momentum amid growing uncertainty.
• The continuing government shutdown has paused several crucial economic reports, leaving policymakers with limited insight into the nation’s actual economic condition.
• Markets have priced in a 25-basis-point reduction, with investors anticipating another possible cut later this year if economic softness persists.

Uncertainty mounts as data gap widens amid government shutdown

The U.S. central bank, the Federal Reserve (Fed), is expected to announce its second interest-rate cut of the year on Wednesday, even though the health of the economy remains unclear due to the ongoing federal government shutdown. At the time of writing, markets are pricing in a quarter-point reduction to the benchmark federal funds rate — bringing it into the range of 3.75 % to 4.00 %.

Data blackout complicates decision-making

The autumnal shutdown of large parts of the federal government has halted key economic releases — including employment, inflation and manufacturing metrics — leaving the Fed to make decisions with unusually little official data. Analysts note that this lack of visibility significantly raises the risks of a mis-timed cut. In commenting on the situation, Fed Chair Jerome Powell emphasised that the outlook for employment and inflation “does not appear to have changed meaningfully since September”, but acknowledged the elevated uncertainty.

Markets brace for policy shift amid fragile growth

With inflation stubbornly above the Fed’s long-term target and signs of a softening labour market emerging, the expected rate cut signals a shift toward easing bias. At the time of writing, probability tools suggest a high likelihood of a reduction at this meeting, with many strategists forecasting another cut later this year. While the cut is widely anticipated, some investors remain cautious — noting that without full data the Fed could risk tilting policy too far, too fast. The central bank’s next moves will therefore be watched closely for clues on its evolving stance.

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