United States: Central Bank decreases rates in October
Latest bank decision: At its meeting on 29 October, the Central Bank decided to lower the target range for the federal funds rate by 25 basis points to 3.75–4.00%, matching the cut at the previous meeting in September.
Softening labor market drives cut: The key domestic factors driving the cut were weakening job growth and rising unemployment in recent months, together with only a muted inflation passthrough to date from higher tariffs.
More cuts to come: Though the Fed’s chair raised doubts over a cut at the next meeting in December, our Consensus is for multiple further rate reductions between now and the end of 2026, with the fed funds rate forecast to settle at a long-term level of slightly above 3%.
Panelist insight: Commenting on their forecasts, ING analysts said:
“Our view is that the inflation backdrop is looking less threatening than it did in early summer, with the slow tariff pass-through allowing disinflationary pressures from lower energy costs, slowing housing rents and cooling wage growth to mitigate the effect. At the same time, the jobs’ outlook is more concerning. We expect a December rate cut, and while we retain a moderately upbeat outlook, we think it will take at least two more rate cuts next year and further dollar weakness to achieve the required platform for growth.”
TD Economics’ Thomas Feltmate had a slightly different take:
“Given the growing divide among policymakers and the ongoing risk that a prolonged government shutdown could affect future inflation releases – for which there isn’t a reliable alternative – Fed officials are likely to become more cautious heading into next year and hold the policy rate steady through Q1.”