Will the Fed cut rates at the end of October? Here’s what to expect and how it will impact your mortgage

The federal government has been shutdown for over two weeks now which has meant that policymakers at the Federal Reserve haven’t received official data on the state of the US economy in the lead-up to their next meeting this month. Those numbers are crucial for them to determine what should be done with interest rate policy in two weeks.

However, Fed Chair Jerome Powell did give some insight into what the Fed board members are thinking when he spoke at a National Association for Business Economics conference in Philadelphia on Tuesday. “Rising downside risks to employment have shifted our assessment of the balance of risks,” he said.

“While official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low, and that both households’ perceptions of job availability and firms’ perceptions of hiring difficulty continue their downward trajectories,” Powell commented.

Will the Fed cut rates at the end of October?

It is largely believed that given his comments, when the Federal Open Market Committee meets on 28 and 29 October it will decide to cut the central bank’s policy rate by another quarter of a percentage point. This could lower borrowing costs for Americans for mortgages and car loans as well as loans for businesses.

“You do have a bit of tension between labor market data - we see very low levels of job creation - and yet people are spending. We are going to have to see how that plays out,” Powell explained. “Data available prior to the shutdown, however, show that growth in economic activity may be on a somewhat firmer trajectory than expected,” he added.

Powell acknowledged that “there is no risk-free path for policy as we navigate the tension between our employment and inflation goals,” but that “the outlook for employment and inflation does not appear to have changed much since our September meeting.”

At that meeting board members reduced the central bank’s key rate for the first time this year and policymakers forecast that the Fed would reduce its rate two more times this year and once in 2026.

The Fed’s interest rate policy balancing act

However, Powell noted that the Fed is taking a “meeting-by-meeting approach to policymaking” and that the boards policy projections “should be understood as representing a range of potential outcomes.” He explained that those probabilities “evolve” as members are informed by new information that they receive.

“If we move too quickly, then we may leave the inflation job unfinished and have to come back later and finish it. If we move too slowly, there may be unnecessary losses, painful losses, in the employment market,” Powell said. “So we’re in the difficult situation of balancing those two things.”

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