The Federal Reserve is expected to announce another interest rate cut later today, its second of the year, in a move that could have wide-reaching implications for markets, households, and the 2024 US presidential race. The announcement comes at a delicate moment: economic data is thin due to a government shutdown, inflation is creeping up again, and labour market momentum is fading.

Related: Fed approves quarter-point interest rate cut and sees two more coming this year

According to CME FedWatch Tool, traders are assigning nearly a 100% probability to a 25 basis point cut, bringing the benchmark federal funds rate to a range of 3.75%–4.00%. But beyond the expected cut, all eyes will be on Fed Chair Jerome Powell’s press conference this afternoon to glean insights into what comes next — particularly the likelihood of another cut in December.

Why a Second Cut Now?

In September, the Fed made its first rate cut of the year, responding to early signs of a labor market slowdown. Since then, those signals have only grown louder.

  • Hiring has slowed, with job creation slipping and wage growth decelerating.
  • Yet inflation remains sticky, recently ticking up due to Trump’s broad-based tariff policies and continued global supply constraints.
  • Meanwhile, the government shutdown has left policymakers partially blind — key data such as the nonfarm payrolls report and GDP figures were never released.

That combination — slowing job growth and persistent inflation — sets up a classic policy dilemma. Cut too aggressively, and the Fed risks re-igniting inflation. Stay too tight, and the labor market could unravel further.

Related: The Fed’s Rate Cuts: What Drives Decisions — And Why Now

The Trump Factor: Political Pressure on the Fed

Adding complexity is the very public campaign by President Donald Trump to push the Fed toward more aggressive easing. Trump, who is midway through his second term, has made no secret of his desire for deep rate cuts to fuel growth ahead of his potential final re-election campaign in 2028.

  • Trump has called for cuts totaling up to 3 percentage points — far beyond what markets or the Fed are currently considering.
  • He has reshaped the Fed’s leadership, nominating loyalists and attempting to remove dissenters like Governor Lisa Cook, who sued to keep her position after Trump tried to fire her.
  • His top economic advisor, Stephen Miran, now a Fed Governor, dissented in the last meeting in favor of a 50 bp cut, and is expected to do so again today.

The central bank remains independent in theory, but Trump’s moves have raised alarms about the politicization of monetary policy.

Why the Fed Might Pause Instead

Despite market consensus, it’s not a done deal. Several Fed members — including regional presidents from Cleveland, Dallas, and St. Louis — have expressed skepticism about the need for further cuts without clearer economic signals.

Moreover, with only one inflation report available during the shutdown and employment data missing, some officials argue it’s too risky to act again without full visibility.

Still, Powell signaled in recent speeches that the balance of risks has tilted toward labor market weakness — possibly laying the groundwork for today’s cut.

What’s Next? Market Implications

If the Fed cuts as expected but Powell sounds cautious about further easing, we could see short-term volatility, especially in tech and rate-sensitive stocks. On the other hand, if Powell leaves the door wide open for another cut in December, it may fuel a fresh leg up for equities and bonds.

Markets are also watching for signals on:

  • Quantitative tightening (QT): The Fed’s balance sheet runoff may soon be paused as liquidity tightens.
  • December outlook: Traders are already pricing in a near-certainty of another 25 bp cut at the year’s final meeting.

Walking a Tightrope

Today’s Fed decision is less about whether to cut, and more about how much confidence Jerome Powell shows in the path ahead. With Trump pressuring for more, inflation still above 3%, and recession fears quietly simmering, the Fed is trying to strike a difficult balance.

Markets may get the rate cut they expect — but it’s Powell’s words this afternoon that will shape the next big move.

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