Fed meets amid data fog: Problems for the world's number 1 economy

(Dan Tri) - Amid the US government shutdown that has caused key economic data to almost disappear, the Fed is still expected to lower interest rates - a decision that could determine the fate of the entire economy.

Wall Street is having its best days. Right before the important policy meeting of the US Federal Reserve (Fed), all three major stock indexes, Dow Jones, S&P 500 and Nasdaq, all closed at new record highs, extending their growth momentum thanks to positive signals from US-China trade negotiations.

But in stark contrast to the festive atmosphere in financial markets, in Washington DC, the world's most powerful monetary policymakers are preparing for one of their most difficult meetings. They are like captains navigating a giant economic ship through rough seas without a compass or a chart.

The Federal Open Market Committee (FOMC), the Fed's decision-making body, will meet on October 28-29 (US time). The final decision will be announced at 2:00 p.m. on October 29, Eastern Time, or about 1:00 a.m. on October 30, Vietnam time.

And the storm they face comes from a rare event: the US federal government has been shut down for nearly a month due to political deadlock. This situation has prevented a series of important economic reports, especially September employment data, from being released. The Fed is having to make decisions in a dense information fog, a situation that is almost unprecedented.

The Fed is expected to announce its second interest rate cut of the year on October 29 (US time) (Photo: Pintu).

A rate cut is almost certain.

Despite the lack of data, the market is almost 100% certain that the Fed will act. According to the CME Group's FedWatch tool, there is a 96.7% chance that the Fed will cut its benchmark interest rate by another 0.25 percentage point. If that happens, it will be the second cut in 2025, bringing the benchmark rate down to 3.75-4%.

So what is the basis for this confidence? The only glimmer of light that pierced the fog was the September Consumer Price Index (CPI) report, released by the US Department of Labor on Friday. The report showed that inflation rose just 3% year-on-year, lower than experts had forecast.

“The concerns that tariffs will cause prices to rise have not yet materialized in most commodity groups,” said Scott Helfstein, chief investment strategist at Global X. “There is nothing in the inflation data that will prevent the Fed from cutting rates next week.” Prices have risen, but not enough to make the Fed hesitate in supporting the economy, he added.

Experts from Bank of America also agreed, saying that the latest CPI data "will keep the Fed focused on the labor market." And with the jobs report still a mystery, "an October rate cut is almost certain."

The gamble between inflation and employment

The Fed’s upcoming decision is a real test of its two core mandates: to contain inflation and maintain low unemployment. These two goals seem to be pulling in opposite directions.

On one side is concern about a weakening labor market. Before the shutdown , the numbers were showing clear signs of weakness.

The economy created just 22,000 jobs in August, a disappointing figure. Fed Chairman Jerome Powell himself acknowledged in September that the central bank was increasingly concerned about rising risks to the job market. A rate cut would give businesses more breathing room, stimulating borrowing to expand production and hiring.

On the other side is the specter of inflation. Although the CPI in September was lower than forecast, 3% is still significantly higher than the Fed’s long-term target of 2%. Price pressures are partly due to tariffs imposed by the Trump administration on its trading partners. Keeping interest rates high is the traditional tool to cool inflation.

In that context, policymakers are forced to rely on “a variety of public and private sources of information that are still available,” as Mr. Powell acknowledged. This is a real gamble, because a wrong decision could push the economy into recession or fan the flames of inflation.

More than just interest rates

The focus of the meeting is not just on raising or lowering interest rates. Experts are paying attention to another important move, which is the possibility that the Fed will announce the end of the program of shrinking the balance sheet, also known as "quantitative tightening" (QT).

For years, the Fed has been buying trillions of dollars in bonds to pump money into the economy. Quantitative easing is the reverse process, allowing those bonds to mature without reinvesting them, thereby slowly draining money out of the system.

An earlier-than-expected end to QT would be a strong signal of monetary easing, complementing the rate cuts, which Bank of America and Diane Swonk both predict will happen.

In addition, the Fed is operating under considerable political pressure. President Trump has repeatedly criticized Chairman Powell on social media. The legal turmoil targeting Fed Governor Lisa Cook has also cast a shadow over the independence of the world's most powerful central bank.

If the Fed cuts interest rates as expected, the cost of short-term borrowing, from credit cards to car loans, will fall across the board (Illustration: turismo.cadiz.es).

Impact on your wallet

A 0.25 percentage point cut may not make an immediate difference, but it is part of a trend. Economists expect another cut in December, which could make borrowing costs significantly cheaper by the end of the year.

This will directly impact variable-rate loans like credit cards or home equity lines of credit (HELOCs).

For those thinking about buying a home, the good news is that mortgage rates have dropped to their lowest level in a year. But don't expect a further drop.

"The Fed's decisions are often anticipated by the market, meaning the upcoming cut is largely priced in," explains Danielle Hale, chief economist at Realtor.com. In other words, the market has already "discounted" the news.

Once again, all eyes are on the Fed, where even a small move can change the pulse of the markets. This decision comes amid many unknowns, but carries weight far beyond the numbers. The Fed’s choice will send a clear message about confidence, risks, and the direction of the economy in the coming months.

Source: https://dantri.com.vn/kinh-doanh/fed-hop-giua-suong-mu-du-lieu-bai-toan-cho-nen-kinh-te-so-1-toan-cau-20251027213521395.htm