Fed's rate cut is expected after the September inflation.

Interest Rate Predictions Before the Fed Meeting

In the U.S., disruptions in data flow due to the government shutdown have reduced the predictability of Federal Reserve (Fed)’s upcoming policy decisions. The inflation figures announced in September fell below market expectations, increasing the likelihood that the Fed may lower interest rates at its meeting in October 2023. Experts forecast that, due to the continued momentum in the weak labor market, rate cuts may persist into 2026.

New Moves in Interest Rate Cuts May Come

Rabobank Senior U.S. Strategist Philip Marey stated that the low inflation data supports a 25 basis point interest rate cut at the Fed's meeting in October. Marey noted that the released data shows ongoing weakness in the labor market and suggested that the Fed could announce the end of its balance sheet reduction process. However, due to the government shutdown, Marey pointed out that limited data may make Fed Chairman Jerome Powell cautious in providing guidance for December.

The Impact of Employment and Inflation Figures

Marey mentioned that the uncertainties created by the government shutdown and the weakness in the labor market could lead to another interest rate cut in December. However, he warned, "If inflation or employment data unexpectedly rises, the Fed may refrain from cutting rates at the December meeting," and predicted that rate cuts would continue gradually until reaching a neutral interest rate.

Economic Expectations and Interest Rate Cuts

ING Chief International Economist James Knightley emphasized that the likelihood of a 25 basis point interest rate cut at the Fed's October meeting is high. Knightley noted that the rate cut decision made in September was described by Powell as "risk management." He expressed that the inflation remaining above the target level poses a threat, and considering the pessimistic signals from business surveys, he anticipates another cut in December.

In conclusion, negative data in the labor market and the government shutdown are significant factors influencing the Fed's upcoming decisions.