The Federal Reserve is anticipated to reduce its benchmark interest rate by a quarter percentage point on Wednesday, marking the third consecutive rate cut. This action is intended to provide support for the job market.
Internal deliberations within the Federal Reserve's rate-setting committee may be complicated by current inflation levels and delays in economic data, leading to expected disagreement among committee members.
A rate reduction typically lowers borrowing costs for consumers and businesses, potentially affecting loans for vehicles, business expansion, and credit card balances. The preceding two rate cuts implemented by the Fed were not unanimous, indicating differing perspectives among policymakers.
Economic conditions present a policy dilemma: inflation remains above the Fed's target, a situation that would ordinarily suggest maintaining elevated interest rates. Concurrently, unemployment figures have shown an increase, which generally points towards lowering rates. Policymakers are divided on the priority of addressing these two issues.
The availability of timely economic data has been affected by a six-week government shutdown. Federal workers responsible for collecting inflation and unemployment data were furloughed in October, and November's readings have been postponed until the following week, after the Fed's decision-making timeline. Consequently, policymakers are relying on September's economic data, which reported annual inflation at 2.8% (based on the Fed's preferred measure) and unemployment at 4.4%. Both figures represented a slight increase from the preceding month.
Investors widely anticipate that a majority of Fed policymakers will vote in favor of a quarter-point rate cut at the conclusion of the meeting. Following the decision, policymakers are also scheduled to release updated projections for future interest rate movements in the coming year. At their September meeting, officials had projected an average of one additional interest rate cut in 2026.
President Trump has publicly advocated for more significant rate reductions by the central bank. The Federal Reserve is structured to operate independently of political influence. In September, Mr. Trump appointed Stephen Miran, a White House economic adviser, to a short-term vacancy on the Fed board. Mr. Miran has cast the sole vote for larger, half-point rate cuts at the two preceding meetings.
Additionally, Mr. Trump attempted to replace Fed Governor Lisa Cook, citing unproven allegations of mortgage fraud. This effort has been blocked by the Supreme Court, which is scheduled to hear arguments in Ms. Cook's case next month. President Trump has also expressed criticism of Fed Chair Jerome Powell, stating that Mr. Powell has been "too late" in implementing interest rate cuts. Mr. Powell's term as Fed chair concludes in May, and Mr. Trump is expected to announce a nominee for the central bank's leadership soon.