Fed's Decision to Lower Rates Faces Opposition Due to Uncertain Data and Ongoing Inflation Worries

The Federal Reserve lowered its key interest rate by 25 basis points on Wednesday, setting the new target range at 3.75%-4.00%. This move, aimed at countering both sluggish economic growth and inflation that remains above the Fed’s 2% objective, was detailed in its

. The decision, which had been largely expected by investors, as reported by , came after a two-day Federal Open Market Committee (FOMC) meeting and represented the second rate reduction of 2025. However, the vote was split, with two members dissenting—Stephen Miran, appointed during the Trump administration, advocated for a deeper 50-basis-point cut, while Jeffrey Schmid from the Kansas City Fed preferred to keep rates unchanged due to inflation worries, as highlighted in the FOMC statement.

This rate adjustment occurred during a government shutdown that has interrupted the release of vital economic statistics, compelling Fed officials to depend on private data and alternative indicators, according to a

. Although last week’s inflation numbers showed a slight decrease, as noted in an , the central bank stressed that "inflation remains somewhat elevated" and that the risks to achieving both maximum employment and stable prices are still imbalanced, according to the FOMC statement. The rate cut reflects mounting worries about a weakening job market, with hiring slowing and unemployment rising to 4.3% in August, the WCVB article reported.

Financial markets responded quickly to the Fed’s announcement, with

climbing above $116,000 as leveraged crypto derivatives positions soared to $37.6 billion, the highest so far this year, based on an . Traders now see a 96.7% chance of another 25-basis-point reduction in December, according to a , though Chair Jerome Powell cautioned that "a December cut is not a foregone conclusion" due to incomplete data and shifting risks, as mentioned in a . The S&P 500 and Nasdaq 100 also reached new highs, fueled by a rally in technology stocks as investors bet on AI-driven growth and further monetary easing, according to a .

The Fed’s recent policy adjustment has reignited debate over its long-term inflation target. Some critics argue that repeated rate reductions, even as inflation hovers near 3%, signal a tacit acceptance of a higher target. "If the Fed’s actions indicate comfort with 3% inflation, it could damage its credibility," wrote

, pointing out that private-sector expectations for inflation have moved above 2%. Kansas City Fed President Schmid, who opposed the rate cut, warned in a that further easing could weaken confidence in the central bank’s commitment to its 2% inflation goal.

Adding to the Fed’s difficulties, the government shutdown has postponed important economic releases, such as October’s employment and inflation reports, the WCVB article stated. With 750,000 federal employees on furlough, policymakers are operating in uncertain conditions, relying on state unemployment claims and private data to assess the economy, the Morning Brew piece noted. This uncertainty has led to questions about the viability of additional rate cuts, with bond markets now anticipating a gradual move toward 3.25%-3.50% by year-end, according to the Bond Buyer report.

The Fed also revealed plans to conclude its quantitative tightening (QT) program by December 1, ending a three-year effort to shrink its $6.6 trillion balance sheet, as reported by Morning Brew. While this step is intended to steady money markets, analysts warn that the absence of official data heightens the risk of misreading economic trends, the WCVB article cautioned.

With markets awaiting Powell’s comments after the meeting, focus now shifts to the December FOMC session, where the Fed’s upcoming decisions could further challenge its ability to balance economic growth and inflation. For now, the central bank maintains its pledge to "bring inflation back to 2%," even as internal disagreements and external pressures from the White House highlight the complexity of its responsibilities, the FOMC statement said.