Federal Reserve likely to cut key rate Wednesday and may signal another
cut to follow
[October 29, 2025] By
CHRISTOPHER RUGABER
WASHINGTON (AP) — The Federal Reserve will almost certainly cut its key
interest rate on Wednesday and could signal it expects another cut in
December as the central bank seeks to bolster hiring.
A cut Wednesday would be the second this year and could benefit
consumers by bringing down borrowing costs for mortgages and auto loans.
Since Fed chair Jerome Powell strongly signaled in late August that rate
cuts were likely this year, the average 30-year mortgage rate has fallen
to about 6.2% from 6.6%, providing a boost to the otherwise-sluggish
housing market.
Still, the Fed is navigating an unusual period for the U.S. economy and
its future moves are harder to anticipate than is typically the case.
Hiring has ground nearly to a halt, yet inflation remains elevated, and
the economy's mostly solid growth is heavily dependent on massive
investment by leading tech companies in artificial intelligence
infrastructure.
The central bank is assessing these trends without most of the
government data it uses to gauge the economy's health. The release of
September's jobs report has been postponed because of the government
shutdown. The White House said last week October's inflation figure may
not even be compiled.
The shutdown itself may also crimp the economy in the coming months,
depending on how long it lasts. Roughly 750,000 federal workers are
nearing a month without pay, which could soon start weakening consumer
spending, a critical driver of the economy.
Federal workers laid off by the Trump administration's Department of
Government Efficiency efforts earlier this year may formally show up in
jobs data if it is reported next month, which could make the monthly
hiring data look even worse.
Powell has said that the risk of weaker hiring is rising, which makes it
as much of a concern as still-elevated inflation. As a result, the
central bank needs to move its key rate closer to a level that would
neither slow nor stimulate the economy.
Most Fed officials view the current level of its key rate — 4.1% — as
high enough to slow growth and cool inflation, which has been their main
goal since price increases spiked to a four-decade high three years ago.
The Fed is widely expected to reduce it to about 3.9% Wednesday. WIth
job gains at risk, the goal is to move rates to a less-restrictive
level.
Kris Dawsey, head of economic research at D.E. Shaw, an investment bank,
said that the lack of data during the shutdown means the Fed will likely
stay on the path it sketched out in September, when it forecast cuts
this month and in December.
“Imagine you’re driving in a winter storm and suddenly lose visibility
in whiteout conditions," Dawsey said. "While you slow the car down,
you’re going to continue going in the direction you were going versus
making an abrupt change once you lose that visibility.”
In recent remarks, the Fed chair has made clear that the sluggish job
market has become a signficant concern.
“The labor market has actually softened pretty considerably,” Powell
said. “The downside risks to employment appear to have risen.”
Before the government shutdown cut off the flow of data Oct. 1, monthly
hiring gains had weakened to an average of just 29,000 a month for the
previous three months. The unemployment rate ticked up to a still-low
4.3% in August from 4.2% in July.
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Federal Reserve Board Chairman Jerome Powell walks to a meeting
during the World Bank/IMF Annual Meetings at the International
Monetary Fund (IMF) headquarters in Washington, Thursday, Oct. 16,
2025. (AP Photo/Jose Luis Magana)
 Layoffs also remain low, however,
leading Powell and other officials to refer to the “low-hire,
low-fire” job market.
At the same time, last week's inflation report — released more than
a week late because of the shutdown — showed that inflation remain
elevated but isn't accelerating and may not need higher rates to
tame it.
Yet a key question is how long the job market can remain in what
Powell has described as a “curious kind of balance."
“There have been some worrisome data points in the last few months,”
said Stephen Stanley, chief U.S. economist at Santander, an
investment bank. “Is that a weakening trend or are we just hitting
an air pocket?”
The uncertainty has prompted some top Fed officials to suggest that
they may not necessarily support a cut at its next meeting in
December. At its September meeting, the Fed signaled it would cut
three times this year, though its policymaking committee is divided.
Nine of 19 officials supported two or fewer reductions.
Christopher Waller, a member of the Fed's governing board and one of
five people being considered by the Trump administration to replace
Powell as Fed chair next year, said in a recent speech that while
hiring data is weak, other figures suggest the economy is growing at
a healthy pace.
“So, something’s gotta give,” Waller said. “Either economic growth
softens to match a soft labor market, or the labor market rebounds
to match stronger economic growth.”
Since it's unclear how the contradiction will play out, Waller
added, "we need to move with care when adjusting the policy rate."
Waller said he supported a quarter-point cut this month, “but beyond
that point" it will depend on what the economic data says, assuming
the shutdown ends.
Financial markets have put the odds of another cut in December at
above 90%, according to CME Fedwatch — and Fed officials have so far
said little to defuse that expectation.
Jonathan Pingle, chief U.S. economist at UBS, said that he will look
to see if Powell, at a news conference Wednesday, repeats his
assertion that the risks of a weaker job market remain high.
“If I hear that, I think they’re on track to lowering rates again in
December,” he said.
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