Divided US Fed poised for third straight rate cut

WASHINGTON: The US central bank is widely expected to deliver a third consecutive interest rate cut this week, even as analysts expect significant divisions to emerge among policymakers during their two-day gathering.

Financial markets broadly anticipate another 25 basis point reduction after the Federal Reserve’s meeting from Tuesday to Wednesday, which would bring rates to their lowest levels in around three years at 3.50 percent to 3.75 percent.

This would give the world’s biggest economy a boost as the job market weakens, although officials remain wary of persistent inflation as President Donald Trump’s tariffs flow through supply chains.

The Fed’s meeting started at 9am Eastern Time (1400 GMT) as scheduled on Tuesday, said a spokesperson.

Fed’s Williams says Fed can still cut rates in the “near term,” boosting odds of a December move

“It’s difficult to recall a time when the Federal Open Market Committee (FOMC) has been so evenly divided about the need for additional rate cuts,” said economist Michael Pearce of Oxford Economics, referring to the Fed’s rate-setting committee.

This split comes as elevated inflation calls for caution in slashing rates too quickly, while risks to the labor market make a case for lower levels, he added in a recent note.

Fed Governor Stephen Miran, who is on leave from his role heading the White House Council of Economic Advisers, is expected to push for a larger rate cut, while New York Fed President John Williams has also expressed openness for lower rates.

“The vote to cut rates will be accompanied by dissents, likely in both directions,” said KPMG chief economist Diane Swonk.

But a Goldman Sachs report added that Fed Chair Jerome Powell will likely communicate that “the bar for future cuts has risen and explain why some participants opposed a cut.”

Additionally, a recent government shutdown complicates the Fed’s job, depriving policymakers of official labor market data for October and November for now.

Currently, Pearce said, “available evidence doesn’t provide enough confidence that conditions are beginning to stabilize.”

Swonk added: “The most important issue is whether the Fed signals a pause or keeps the door open to additional cuts in January.”

Another risk is that inflation could linger, partly due to expansions to tax cuts, Swonk added.

While the Fed is scheduled to release its summary of economic projections after its meeting as well, she said, the “dearth of new data due to the government shutdown means that the forecasts will carry less weight than usual.”

“It is hard to determine where the economy is going when we are still attempting to catch up on data on where it has been,” she said.