Federal Reserve Likely to Cut Interest Rates despite Data Blackout

The markets are teeming with anticipation, expecting the Federal Reserve to cut borrowing costs again this month. In a recent speech, Fed Chair Jerome Powell maintained these expectations stating that despite the current government shutdown leading to a dearth of crucial economic data, the inflation and unemployment outlook remains similar to the situation in September. In that month, the Fed cut its benchmark interest rate and seemed poised to cut it several more times this year. Due to the shutdown, government statistical agencies that usually provide the data for decision-making regarding the federal funds rate have been closed. This has resulted in a data "blackout" with the Fed failing to receive key reports such as the Bureau of Labor Statistics' job creation report due for October. Despite this, Powell disclosed that Fed officials are relying on data from private companies, Fed surveys, and other existing information in lieu of the usual, reliable reports from the Bureau of Labor Statistics. Adding to the uncertainty, Fed officials are currently divided between cutting interest rates to support the faltering job market and maintaining them at higher levels to manage inflation in line with the Fed's goal of a 2% annual rate. President Trump's tariffs have added to the dilemma by inflicting inflationary pressure and simultaneously slowing down the job market. Powell seemed to lean towards a potential cut in interest rates, emphasizing the deteriorating job market while downplaying the risk of high inflation. He concluded that if the Fed moved too slowly in reducing the interest rates, painful losses in the employment market could result. As of right now, financial markets on Tuesday estimate a 97% probability the Fed would cut interest rates at its next policy committee meeting at the end of October.