Fed likely to cut rates again despite 'no risk-free' path for policy, analysts say

As upside inflation pressures fade and job growth weakens, the Federal Reserve appears poised to cut short-term interest rates again on Oct. 29 at the end of its two-day meeting complicated by missing economic data due to the ongoing government shutdown.

Although inflation ticked up in September and remains above the Fed’s 2% target, analysts expect the central bank to proceed with another quarter-point rate cut, viewing cooling labor market risks as more pressing than lingering price pressures, according to a recent report by Oxford Economics.

Given the Fed’s dual mandate of stabilizing prices and minimizing unemployment, Federal Reserve Chair Jerome Powell said there is “no risk-free” path for policy during an Oct. 16 appearance at the National Association for Business Economics.

“It is fair to say that the outlook for employment and inflation does not appear to have changed much since our September meeting,” Powell said, adding that data available prior to the shutdown show the economy overall “may be on a somewhat firmer trajectory than expected.”

More: Powell says no ‘risk-free’ path as Fed weighs rate cut amid shutdown

Will the Fed cut interest rates?

In September, the Fed cut its short-term rate by a quarter point, lowering the Fed’s benchmark to a range of 4% to 4.25%.

Rate cuts offer a potential counterbalance to inflation by lowering borrowing costs, according to Michele Raneri, vice president and head of U.S. research and consulting at TransUnion.

“Though the broader implications for consumer financial health remain to be fully seen, the early signs point to increased credit activity and potential relief for borrowers,” Raneri said in an Oct. 27 statement.

ING Chief International Economist James Knightley expects a 25-basis-point rate cut on Wednesday. He anticipates another quarter-point reduction in December and an additional 50 basis points of cuts in early 2026.

There is a risk that companies could eventually start cutting jobs more actively, Knightly said. Amazon recently confirmed plans to cut about 14,000 corporate jobs.

“Tariff-related inflation will remain a concern in the near term, but it is the jobs market that is becoming the more pressing issue for the Fed,” Knightley said in an Oct. 24 note.

As of Oct. 27, futures markets anticipate additional quarter-point rate cuts in both October and December.

Who benefits when the Fed adjusts interest rates?

When the Fed lowers interest rates, it aims to stimulate the economy and job market. Lower rates make loans and credit more affordable, benefiting borrowers and homebuyers.

Raising rates, or keeping them higher for longer, on the other hand, slows spending to keep inflation in check. Higher rates can help consumers by stabilizing prices.

Although another rate cut could save consumers more than a billion dollars collectively, most don’t care, according to a recent WalletHub survey. It found more than half of respondents feel another quarter-point cut wouldn’t make a difference in their lives.

Interest rate changes take time to ripple through the economy, often six months to a year, according to Dimitri Silva, Reams Asset Management’s managing director and head of global rates and foreign exchange.

For everyday Americans, lower rates can translate to less interest paid on credit cards, car loans and mortgages, making it a little easier to manage debt, Silva said.

He added that cuts would help small businesses, key engines of job creation that have struggled to weather high borrowing costs.

What data is the Fed using during the government shutdown?

The October meeting will take place under a data blackout caused by the government shutdown, which delayed the September jobs report and halted most data collection at the Bureau of Labor Statistics.

The agency still released its September Consumer Price Index, which was needed to calculate the 2026 Social Security cost-of-living adjustment. It found consumer prices increased 3% from a year earlier, slightly up from 2.9% in August. On a monthly basis, costs increased 0.3% after rising 0.4% in the previous month.

But with fewer official figures, Powell said the Fed is turning to alternative data sources. But, he said that data isn’t as effective as what the federal government typically provides.

He said that includes state-level unemployment claims reports and ADP’s National Employment Report, which found private U.S. employers shed 32,000 jobs in September.

“The alternative data that we look at is better used as a supplement for the underlying governmental data, which is the gold standard,” Powell said Oct. 16. “It won’t be as effective as the main course as it would have been as a supplement.”

How is the US economy overall?

The Fed heads into its October meeting amid more uncertainty.

Aside from data delays, the government shutdown leads to delayed pay for federal workers and contractors, as well as disruptions to services like the Supplemental Nutrition Assistance Program. Shutdowns rarely have a lasting impact on the economy, but they can slow GDP and strain local economies.

Meanwhile, President Donald Trump’s tariff policy continues to fluctuate.

Separately, mortgage rates are down, offering some relief to prospective homebuyers.

At the same time, consumer sentiment continues to fall, dropping to 53.6 in October, down from 70.5 a year ago, according to a University of Michigan index.

Reach Rachel Barber at rbarber@usatoday.com and follow her on X @rachelbarber_

This article originally appeared on USA TODAY: Fed expected to cut interest rates again. Who benefits if they do?