The Federal Reserve is expected to cut interest rates by a quarter of a percentage point at its policy meeting on Wednesday, to a target range of 3.75%-4.00%. That would follow a quarter-point cut in September, the first reduction in the federal-funds rate this year.
Although the government shutdown, which began Oct. 1, has robbed the Fed of official economic reports on jobs and spending, along with its favored inflation gauge, officials have pieced together a mosaic of private surveys, state data, regional research, and financial-market signals to guide their decisions. With the job market cooling and inflation still about a percentage point above the central bank’s 2% target, Fed officials have sought to balance both sides of their dual mandate by moving cautiously on rates, favoring a small pre-emptive cut in September to insure against a steeper downturn.
That may prove to be the case again this week, and again at the December Federal Open Market Committee meeting, as Fed officials’ September forecasts suggested. Investors will be keenly attuned to hints about the December meeting, which means they will focus less on this week’s policy decision and more on the tone of the Fed’s press release and Chair Jerome Powell’s post-meeting press conference.