Fed Set to Cut Interest Rates Again Amid Data Blackout and Inflation Uncertainty

The U.S. Federal Reserve is preparing to cut interest rates for the second time in as many months, as policymakers seek to balance modest inflation gains against a murky economic backdrop caused by the ongoing government shutdown. The decision, expected after the October policy meeting, is widely anticipated to lower the benchmark rate by 25 basis points, bringing it to a range between 3.75% and 4%.

Markets have already priced in this move, with investors expecting another similar reduction before the end of the year. This anticipated easing aligns with the Fed’s longer-term projections suggesting gradual rate cuts continuing through 2027, signaling a cautious but persistent shift toward a looser monetary stance.

The meeting comes under unusual conditions. Since early October, the federal government’s shutdown has delayed several key data releases, leaving policymakers with limited visibility on the economy’s direction. Critical reports, including the September employment figures and jobless claims, were suspended, while the Consumer Price Index was released only after a significant delay. The latest CPI numbers showed a slower-than-expected rise—just 0.3% overall and 0.2% for core inflation—suggesting that price pressures are softening, but not decisively enough to eliminate inflation risk.

In this climate of uncertainty, the Fed is expected to maintain a delicate tone—acknowledging both the risk of inflation lingering above target and the possibility that prolonged tightening could strain the labor market. The absence of fresh economic data adds pressure on Chair Jerome Powell, whose comments will likely be scrutinized for clues about the pace of future cuts and the end of quantitative tightening, the process by which the Fed has been shrinking its balance sheet.

Recent remarks from Powell hinted that the central bank may be close to halting its balance sheet runoff, a signal that would mark a significant shift in policy strategy. The Fed could either announce an official end to the program or set a future date for its conclusion, a move that would reflect growing caution about liquidity conditions in financial markets.

Despite solid growth through the third quarter, the economy faces increasing headwinds. Concerns are mounting about a potential cooling of the labor market and the impact of political gridlock in Washington. The uncertainty created by the data blackout has led some observers to describe the upcoming cut as an “insurance move”—a preemptive measure to protect the economy against unforeseen shocks.

Currency markets are bracing for volatility following the announcement. If the Fed’s tone is cautious about further easing, the U.S. dollar could strengthen as traders scale back expectations of aggressive rate cuts. On the other hand, a dovish signal—acknowledging risks to employment and expressing confidence that inflation is stabilizing—could weaken the dollar and lift the euro.

As policymakers meet under these clouded conditions, the central bank’s challenge is clear: act decisively enough to sustain growth without igniting another wave of inflation. The path the Fed takes from here will likely set the tone for global markets heading into 2026, shaping everything from currency valuations to bond yields in the months ahead.