Fed's Interest Rate Dilemma: Balancing Inflation and Labor Market Strains

The Federal Reserve is poised to lower interest rates by 25 basis points twice more in 2023 to combat weak labor market and inflation risks, according to a Reuters poll. Economists anticipate a significant cut amid a government shutdown and possible changes in Fed leadership.

The Federal Reserve is expected to decrease its key interest rate by 25 basis points twice more this year, with a reduction anticipated next week and another in December, as per a Reuters poll of economists. This shift follows Fed policymakers' recent inclination toward additional cuts amid mixed signals on inflation and labor market strength.

According to the poll, conducted from October 15-21, nearly all surveyed economists foresee the interest rate lowering to 3.75%-4.00% by October 29. However, expectations for further cuts in December drop to 71%. Market traders are already pricing in these reductions, despite ongoing uncertainties caused by a government shutdown delaying critical economic data.

This division within the Federal Open Market Committee reflects differing priorities, with some members focused on the labor market while others view inflation as a greater risk. Delayed data has further complicated the economic picture, with inflation predicted to rise to 3.1% last month. Speculation on the next Fed chair is also adding to the uncertainty surrounding future rate decisions.

(With inputs from agencies.)