The US Federal Reserve announced its second consecutive interest rate cut on Wednesday, lowering the benchmark rate by 25 basis points to a range of 3.75%–4%. This marks the fifth reduction since September 2024, signaling growing caution over economic headwinds as a month-long government shutdown disrupts data collection and amplifies fiscal risks.
The Federal Open Market Committee (FOMC) cited moderating job growth, rising unemployment, and elevated inflation as key factors influencing its decision. While economic activity continues to expand, the committee emphasized 'heightened uncertainties' in its outlook, compounded by delayed economic indicators due to the ongoing shutdown.
Analysts at ICBC International warn that prolonged shutdowns historically correlate with non-linear economic losses, particularly permanent damage to sectors like federal contracting and consumer confidence. 'Fiscal paralysis complicates the Fed’s monetary policy environment,' the report noted, predicting accelerated easing measures in December.
The Fed simultaneously announced it will halt quantitative tightening—the reduction of its $7.4 trillion asset portfolio—by December 1. Markets now await clarity on whether bipartisan progress to end the shutdown will align with the central bank’s next move.
