US Federal Reserve Chair Jerome Powell is expected to push through another quarter-point interest rate cut this week despite growing unease among fellow policymakers that inflation remains too high.
The Fed delivered a second straight reduction in October, driven by the sudden deterioration in the US labor market in the summer. That was followed by an outburst of hawkish concern from some officials, including five who vote on policy this year, signaling hesitancy or unwillingness to support a third move this month.
That growing division has been exacerbated by the lack of fresh economic data due to a government shutdown that spanned much of October and last month. The latest inflation number now in policymakers’ hands, released on Friday, is for September — a report that is unlikely to alter the policy debate.
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The US personal consumption expenditures price index showed a 2.8 percent annual increase in September, compared with 2.7 percent in August, data from the US Department of Commerce’s Bureau of Economic Analysis showed.
Meanwhile, unemployment data showed the jobless rate crept up from 4.3 percent in August to 4.4 percent in September, even as hiring beat expectations, US Department of Labor’s Bureau of Labor Statistics figures showed.
While delayed publications on September’s economic conditions have trickled out, the US government has canceled full releases of October jobs and consumer inflation figures, because the shutdown hit data collection.
Against that backdrop and for about a week in mid-November, investors signaled serious doubt over the prospect of another cut.
The unusual level of drama was resolved on Nov. 21 when New York Fed President John Williams, who is seen as closely aligned with Powell, said he saw room for a reduction in the “near term.” The market took the signal and now assigns more than a 90 percent chance to a move this week.
Economists polled by Bloomberg said they expect the Fed to take a break before two more reductions next year, in March and September. There is also some hope that a flood of new data — as statistical agencies catch up from the shutdown — will resolve the ongoing tension between the Fed’s mandates to contain inflation and maximize employment.
That said, more Fed drama lies on the horizon. US President Donald Trump is expected to soon name a successor to Powell, whose term expires in May. US National Economic Council Director Kevin Hassett, a Trump loyalist, is the frontrunner. That has prompted worries among some investors that the next chair would pursue rate cuts at Trump’s direction and risk spurring inflation.
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