The U.S. Federal Reserve issued its second straight quarter-point benchmark interest rate cut on Oct. 29, as expected, but the ongoing government shutdown — now in its 29th day — will make the central bank’s path to future cuts more challenging if it lasts much longer.

The latest rate reduction moves the interest rate at a range 3.75%-4.0% — its lowest mark since early November 2022 — and follows a mid-September cut that was the first in nine months.

Research: Do Distributors Expect Better 2026 Demand After Rate Cuts? Not Necessarily (Premium, Oct. 20) 

U.S. Federal Interest Rate

The Fed approved the latest cut by a vote of 10-2.

“Available indicators suggest that economic activity has been expanding at a moderate pace,” the Fed’s FOMC statement read. “Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.”

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With the shutdown leaving the Fed with no official economic data from the government’s key sources like the Census Bureau and Bureau of Labor Statistics, the central bank’s board of governors has had to rely on alternative data sources to help guide monetary policy decisions. If the shutdown stretches well into November, it could cause the Fed to delay a further expected rate cut coming out of its next Federal Open Markets Committee meeting set for Dec. 9-10.

“A further reduction in the policy rate of December meeting is not a foregone conclusion,” Fed Chairman Jerome Powell said to reporters. “In fact, far from it. There is still a high level of uncertainty that could be an argument in favor of caution about moving.”

While Powell and the Fed’s comments instill less confidence in a December rate cut than going into latest FOMC meeting, markets appear to still be learning toward the affirmative. The Wall Street Journal reported that CME Group Data shows Oct. 29 interest-rate futures suggesting that investors anticipate a 65% chance of a December rate cut, down from approximately 90% on Oct. 28.

For the manufacturing sector, here’s what Christopher Chidzik, Principal Econoist of the Association for Manufacturing Technology had to comment on the latest FOMC result: “There was a noticeable shadow cast over this meeting by the lack of official statistics due to the ongoing government shutdown, however, Chair Powell was confident that despite the loss of granularity, material shifts in economic conditions will be detected in the data that remains available. While there are widely held expectations of another cut coming at the December meeting, Chair Powell cautioned that it was not a foregone conclusion citing the potential need to pause and assess economic conditions as the policy rate moves into the range of estimates for the neutral rate.”