MNI FED WATCH: 3rd Risk-Management Cut, Then Easing Bar Rises

The Federal Reserve is expected Wednesday to lower its overnight benchmark rate for a third straight meeting to 3.50%-3.75% but with dwindling support for continued easing, the bar moves higher on further cuts next year. 

Policymakers offered "strongly differing views" about whether to continue risk management rate reductions in December according to minutes of their October meeting, and the federal government shutdown has delayed figures on employment and prices. (See: MNI INTERVIEW: High Bar For More Cuts As Neutral Nears-Kaplan) 

But New York Fed President John Williams’ recent remark there's room for another cut “in the near term" indicates support for a December move.

With little change in the economic outlook, the median FOMC official is likely to continue penciling in one cut in 2026, former Fed officials told MNI. (See: MNI INTERVIEW: Fed To Slow Easing, '26 Cuts Not Certain-Clouse)

INFLATION ABOVE TARGET

Borrowing costs are close to neutral while inflation remains well above target as the effects of U.S. tariffs filter into consumer and business prices. September's PCE inflation report showed headline and core prices rising at a 2.8% annual rate. (See: MNI INTERVIEW: Tariff Price Boost Still Percolating - Schoenle)

The U.S. job market continues to slow but most analysts see no signs of a more worrisome decline. Weekly jobless claims remain low, as have layoffs. 

September's jobs report, collected ahead of the shutdown but released in late November, showed the U.S. added a more-than-expected 119,000 jobs. The unemployment rate ticked however up to 4.4%, its highest since late 2021. (See: MNI INTERVIEW: US Job Market Continues To Slow - Glassdoor)

The shutdown forced the Bureau of Labor Statistics to skip the October jobs report. It plans to combine October nonfarm payrolls with the November report due for release Dec. 16.

NEW PERSONNEL

The changing composition of the Fed could shift the majority toward more rate cuts next year, especially if the Supreme Court allows President Donald Trump to fire Governor Lisa Cook. 

Administration efforts to gain influence over U.S. monetary policy are setting up the most consequential showdown over Fed independence in decades with a wide range of potential outcomes, former St. Louis Fed President James Bullard told MNI. (See: MNI INTERVIEW: Fed Faces Politically Tumultuous Year - Bullard)

Investors have voiced concern over the current frontrunner to lead the Fed, National Economic Council director Kevin Hassett, saying aggressive rate cuts in the face of lingering inflation could have the opposite effect on long term rates. 

Powell's term expires in May, and Trump has said he plans to announce his pick for Fed chair in January.