The Fed announces a 25 basis point rate cut during the government shutdown

"The Fed announced a quarter-percent cut Wednesday, even as the government shutdown disrupts major data releases. The second rate reduction of the year is in alignment with expectations: CME FedWatch projected a near-100% chance of a cut before the meeting and the central bank previously penciled in cuts for its last two meetings of 2025 in its September economic projections. The Federal Open Market Committee had to make a decision this month without a full economic picture. The government shutdown - which is approaching the one month mark - led to a delay of the Bureau of Labor Statistics' consumer price index inflation report until last Friday. The September jobs report still hasn't been released, and would have given updated unemployment and job creation numbers."

"The shutdown "will weigh on economic activity," Chair Jerome Powell said at the press conference, but the impacts will likely resolve when the government reopens. "This is a temporary state of affairs," he said. Powell emphasized the importance of the Fed's dual mandate goal: maximum employment and tempered inflation. A second cut suggests a continuation of this strategy as the job market started to look softer over the summer. "There is no risk-free path for policy as we navigate this tension between our employment and inflation goals," Powell said."

"The government shutdown means that the Fed is missing key pieces of jobs data. Without a September jobs report, Fed leaders had to lean on previous patterns in the labor market. Based on available public and private jobs data, Powell said labor market conditions "have not changed much" since last month."

The Federal Reserve reduced its policy rate by 0.25 percentage points, marking the second cut of the year and matching market expectations. The decision occurred amid a nearly monthlong government shutdown that delayed key economic releases, including the consumer price index and the September jobs report, leaving the Fed without a full data picture. Chair Jerome Powell said the shutdown will weigh on activity but called the effects temporary and reiterated the dual mandate of maximum employment and controlled inflation. Fed leaders relied on public and private labor data and noted growing internal divisions over policy moves this year.

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