The U.S. Federal Reserve is expected to announce a possible interest rate cut on Wednesday, as rising inflation and a slowdown in hiring put pressure on the central bank’s policy stance.
Top Federal Reserve officials appear divided over the move, with concerns growing about a potential “stagflation” scenario. Inflation has increased in recent months, while job growth has weakened, leaving the Fed with a difficult balancing act.
Fed Chair Jerome Powell recently acknowledged the challenge, stating, “We have one tool. You can’t address both of those at once.”
Market expectations for a rate cut have risen sharply. According to the CME FedWatch Tool, the probability of a quarter-point cut has jumped to 87%, up from 30% last month.
Data from September showed mixed signals in the labor market. Although employers added more jobs than anticipated, the unemployment rate climbed to 4.4% — the highest since October 2021.
Key policymakers, including New York Fed President John Williams and San Francisco Fed President Mary Daly, have signaled openness to a cut, saying there is “room for a further adjustment” in the near term.
If approved, the Fed’s benchmark interest rate will fall to a range between 3.5% and 3.75%, marking a significant retreat from the highs of 2023. Lower rates may ease pressure on mortgage and credit card borrowers, but savers could see reduced returns.
The final decision, expected Wednesday, will signal the central bank’s approach to navigating rising prices and softening employment in the months ahead.