The US government shutdown has lasted for more than 40 days since the beginning of October. During this time, the Fed has also suspended economic data, which it closely monitors when making interest rate decisions.
While the FED made a 25 basis point cut in October, as expected, in the absence of important data, all eyes are now on the FED’s final interest rate decision for 2025 in December.
FED Chairman Jerome Powell’s statement, “A rate cut in December is not certain,” following the October decision, increases uncertainty about December.
As divisions within the Fed grow, Boston Fed President Susan Collins said she favors keeping interest rates steady in light of limited data.
Speaking in Boston, Collins said that great caution should be exercised when deciding on interest rate cuts due to concerns about high inflation.
Speaking for the first time since the Fed’s October 29 meeting, Collins said that further interest rate cuts risked slowing or even halting inflation’s return to its 2% target.
Susan Collins, who voted in favor of a rate cut last month, stated that she supported the decision to cut interest rates at the last policy meeting, but that the conditions for new cuts were quite challenging.
Collins emphasized that inflation data is limited, particularly due to the government shutdown, and that as a result, additional interest rate cuts should be considered cautiously unless there are clear signs of deterioration in the labor market.
Collins stated that in the current environment of high uncertainty, it would be appropriate to keep the policy rate steady for now to balance inflation and employment risks.
“The most appropriate policy would likely be to keep interest rates at current levels for a while to offset inflation and employment risks. There is a relatively high threshold for additional easing in the near term.”
Wall Street Journal reporter Nick Timiraos, known as the Fed spokesman, stated that the Fed is experiencing a major rift over interest rate decisions. Timiraos noted that an unusual clash has emerged between the Fed’s hawkish and dovish figures. He added that such a level of division has never been seen before during Powell’s nearly eight-year tenure.
With interest rates hovering around 3.75%-4%, markets are still pricing in a rate cut amid a rare hawk-dove clash. According to the Fed Watch Tool, a 25 basis point rate cut is priced in at 53.9%, while holding rates steady is priced in at 46.1%.
*This is not investment advice.