The Fed's Rate Cut Plans: Navigating Uncertainty

The Federal Reserve is likely to lower interest rates this week, despite a lack of recent data. This is because the government shutdown has delayed key reports on jobs and inflation. Without this data, the Fed is making big decisions based on incomplete information. The Fed has hinted at rate cuts in October and December. But if job numbers suddenly improve, these cuts might not be needed. Private data from ADP shows that hiring picked up in late September. This could mean the economy is stronger than expected.Before the shutdown, job gains were weak, averaging just 29, 000 a month. Unemployment is still low, at 4. 3%. Inflation is high but not getting worse. The Fed is watching other data sources to fill the gaps. The Fed might also stop reducing its massive bond holdings. This could slightly lower long-term interest rates, like those for mortgages. The Fed bought these bonds during the pandemic to keep rates low. Now, it's slowly selling them off. In 2019, the Fed's bond sales caused a sudden spike in short-term rates. The Fed wants to avoid this mistake. It's being careful not to shrink its holdings too quickly. This could lead to higher rates and market disruptions.