The Federal Reserve enters this week’s policy meeting caught between market expectations for another rate reduction and Chair Jerome Powell’s repeated warnings about proceeding cautiously. As the year’s final decision approaches, the tension between external pressure and internal deliberation has rarely been more apparent.
Financial markets have priced in a rate cut on Wednesday, anticipating the Fed will deliver a third consecutive reduction after the half-point cuts implemented in September and October. These moves brought rates down to 3.75% to 4% from the decades-high levels reached during the inflation battle that began in 2022. However, Powell’s rhetoric suggests the decision is far from automatic.
The committee faces unprecedented challenges that justify caution. The six-week government shutdown eliminated October’s economic data collection entirely, leaving officials without critical information about price movements and employment trends during a volatile period. November’s statistics will arrive too late to inform this week’s decision.
Powell has been explicit about the difficulties of the current moment, noting that both inflation and unemployment are rising simultaneously. This dual deterioration eliminates easy choices, as the Fed’s single policy tool—interest rates—cannot independently address both problems. Different officials hold different views on which concern should take priority, with varying forecasts and risk tolerances driving the internal disagreement.
The political environment adds another layer of complexity to the deliberations. With Powell’s chairmanship ending in May, speculation intensifies around potential successors, particularly Kevin Hassett, who has advocated vocally for additional rate cuts. The administration’s preference for looser monetary policy contrasts with Powell’s more measured approach. The Federal Open Market Committee’s 12 voting members will announce their decision Wednesday afternoon, resolving—at least temporarily—the tension between market expectations and the chairman’s cautious stance that has defined recent months.